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Bidding CHP portfolios consistently into sequential reserve and electricity spot markets

Author

Listed:
  • Philip Beran
  • Christian Furtwängler
  • Christopher Jahns
  • Arne Vogler
  • Christoph Weber

    (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen)

Abstract

The profitable exploitation of asset portfolios in the European electricity markets has become more challenging in recent years. This is particularly true for combined heat and power (CHP) generation units that are often facing must-run conditions due to heat demands that need to be satisfied. Including the use of flexibility from storage technologies is key to optimize power plant operation margins and therefore it is crucial to adequately account for price uncertainties in the European market design. Stochastic optimization is thus frequently suggested for an optimal bidding and dispatch of said portfolios. In our contribution, we develop a novel chain of one weekly and five daily two-stage stochastic optimizations with recourse to identify the optimal bidding strategies for CHP portfolios to all relevant markets, including the key European electricity market segments, i.e., hourly day-ahead and quarterhourly intraday opening auctions, and control reserve markets, i.e., primary (FCR), secondary (aFRR) and tertiary (mFRR) reserve auctions. We test our model by means of a rolling-horizon approach on historical data and contrast our model’s performance with regards to objective function improvement and computation time for various numbers of scenarios. We furthermore benchmark the model against its deterministic representation with and without perfect information. We find that stochastic optimization may substantially increase portfolio returns, without impairing the usability of stochastic optimization frameworks in real-world contexts, a result that is stable with and without the consideration of heat provision and with different market designs regarding FCR provision periods.

Suggested Citation

  • Philip Beran & Christian Furtwängler & Christopher Jahns & Arne Vogler & Christoph Weber, 2025. "Bidding CHP portfolios consistently into sequential reserve and electricity spot markets," EWL Working Papers 2502, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised May 2025.
    • Handle: RePEc:dui:wpaper:2502
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    References listed on IDEAS

    as
    1. Florian Ziel, 2015. "Forecasting Electricity Spot Prices using Lasso: On Capturing the Autoregressive Intraday Structure," Papers 1509.01966, arXiv.org, revised Jan 2016.
    2. Ziel, Florian & Weron, Rafał, 2018. "Day-ahead electricity price forecasting with high-dimensional structures: Univariate vs. multivariate modeling frameworks," Energy Economics, Elsevier, vol. 70(C), pages 396-420.
    3. Siddique, Muhammad Bilal & Keles, Dogan & Scheller, Fabian & Nielsen, Per Sieverts, 2024. "Dispatch strategies for large-scale heat pump based district heating under high renewable share and risk-aversion: A multistage stochastic optimization approach," Energy Economics, Elsevier, vol. 136(C).
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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