Bilevel programming for price-based electricity auctions: a revenue-constrained case

Abstract

This paper describes the application of bilevel programming to a class of real-life problems in the field of electric power systems. Within the context of electricity markets, market-clearing procedures, i.e., auction models, are used by an independent entity to schedule generation offers and consumption bids as well as to determine market-clearing prices. This paper addresses a mathematically challenging type of auction, denoted as price-based market clearing, wherein, as a distinctive feature, market-clearing prices are explicitly incorporated in the formulation of the optimization process. This paper shows that bilevel programming provides a suitable modeling framework for price-based market clearing. Furthermore, based on practical modeling aspects, an equivalent single-level primal-dual transformation into a mixed-integer program can be implemented. Such transformation relies on the application of duality theory of linear programming. The bilevel programming framework for price-based market clearing is applied to a revenue-constrained auction model similar to those used in several European electricity markets. As a major contribution, bilinear terms associated with both generation revenue constraints and the duality-based transformation are equivalently converted into linear forms with no additional binary variables. Simulation results show the effective performance of the proposed approach and its superiority over current industry practice.

Keywords

• 90-08
• 90B30
• 90C11
• 90C90