Bidding Into Electricity Markets: A Transmission-Constrained Residual Demand Derivative Approach

This paper proposes a novel approach to optimize a generator´s profit in an offer-based electricity market cleared by an optimal power flow (OPF) program. A generator´s offer is optimized based on its transmission-constrained residual demand derivative (TCRDD), which avoids representing the full network model in the optimization. The TCRDD can be easily calculated based on a solved OPF without changing existing OPF algorithms and programs. As demonstrated with an IEEE 118-bus example, the TCRDD approach is computationally efficient. The TCRDD approach can help market participants to bid into electricity markets, and help market monitors to diagnose bidding behaviors in the presence of transmission constraints.