Optimal sales-mix and generation plan in a two-stage electricity market

A bi-level stochastic programming problem is used to model the optimal decision of a risk averse electricity
producer, interacting in a two-stage market with cost minimizer competitors. His decision variables include
the distribution of production (which plant of different technologies and variable costs to operate) and the
sales-mix (how much generation to commit to bilateral contracts and spot market). To enhance computation
times, the bi-level problem is transformed into a Mixed-Integer Linear Problem (MILP) by applying
sophisticated linearization techniques. Electricity demand, Renewable Energy Sources (RES) generation and
production costs are different sources of uncertainty. A copula method is used to generate scenarios under
different correlations values (between RES generation and demand), to analyze the impact of correlation on
the optimal solution. The model is tested through extensive numerical simulations based on data from the
Spanish electricity market. The results show that correlation and risk aversion have a relevant impact on
how sales-mix and generation plan decisions should combine optimally.