Application of Information-Gap Decision Theory to Generation Asset Allocation

In the deregulated electricity market, the generation company (GenCo) can sell electricity power through several trading choices such as bilateral contracts and the spot market. These trading choices have different risk characteristics. Especially, the risk faced by the GenCo in the spot market trading is extremely large. To seek the maximum profits and the minimum risk simultaneously, the GenCo should allocate its generation capacity among these trading choices reasonably. A risk management method based on the information-gap decision theory (IGDT) is proposed to evaluate different generation asset allocation strategies under serious uncertainty of spot market prices. An information-gap model is used to describe the volatility of spot market prices around the forecasted prices. Robustness of the decisions against low spot prices is evaluated using a robustness model and windfall higher profit due to unpredicted higher prices is modeled using an opportunity function. Numerical simulation is used to illustrate the proposed method.