Optimal Self-Commitment under Uncertain Energy and Reserve Prices

This paper describes and solves the problem of finding the optimal self-commitment policy in the presence of exogenous price uncertainty, inter-product substitution options (energy versus reserves sales), and different markets (real-time versus day-ahead), while taking into consideration intertemporal effects. The generator models consider minimum and maximum output levels for energy and different kinds of reserves, ramping rate limits, minimum up- and down-times, incremental energy costs and start-up and shut-down costs. Finding the optimal market-responsive generator commitment and dispatch policy in response to exogenous uncertain prices for energy and reserves is analogous to exercising a sequence of financial options. The method can be used to develop bids for energy and reserve services in competitive power markets. The method can also be used to determine the optimal policy of physically allocating generating and reserve output among different markets (e.g., hour-ahead versus day-ahead).