Agent-Based Modeling of Electricity Purchasing Decisions by Load Serving Entities Subject to Transmission Rights and Constraints

Portfolio optimization is an investment decision that demands careful evaluation of risk-return trade-offs of trading options by a participant of electricity markets. A market participant seeks to determine a trading portfolio that maximizes return as well as minimizes associated risks. A novel procedure is developed in this paper to determine electricity trading portfolio of a load serving entity in a wholesale market with both centralized day-ahead auction and decentralized bilateral trades. In this paper, independent system operator conducts a simultaneous feasibility test to determine maximum feasible financial bilateral trades. The portfolio optimization procedure incorporates the maximum feasible bilateral trades announced by the independent system operator. The procedure also considers whether load serving entities are responsible for uncertain transmission congestion charges or hold any financial transmission rights as hedge against the uncertain charges. Three case studies show that the new procedure determines trading portfolio of a load serving entity, irrespective of whether it is responsible for transmission congestion charges or holds any financial transmission rights.