Optimal Investment for Retail Company in Electricity Market

Considering an optimal investment problem for a retailer in electricity market, the objective is to seek the optimal investment decision that maximizes the weighted sum of the expected return and the variance of wealth. Unlike existing works, the price fluctuation of both the wholesale and retail side of electricity market is considered, and the retailer can invest its wealth in electricity market and traditional financial market simultaneously. Hence, there is a complicated wealth dynamic, which is the main challenge in our work. In this paper, by utilizing the method of Lagrange multiplier and the classical Tchebycheff inequality, we first show that the investment problem is a quadratic programming problem in terms of the decision variable, and thus has a unique optimal solution. Then, a closed-form optimal solution is derived by solving the stationary equation and comparing the feasible solution interval. Based on the optimal solution, we find the key price, which will affect the investment is the wholesale price rather than the retail price. Moreover, with a similar analysis approach, we also provide the optimal solution considering a more general model, which allows the retailer to purchase the electricity temporarily to avoid the supply shortage. Extensive simulations demonstrate the better performance of the proposed solution over the Kelly strategy widely used in the financial market.