Decision making in forward power markets with supply and demand uncertainty

Abstract

The paper studies forward markets of electric energy, where generators and consumers bid for quantities of energy ahead of time, but face uncertainty on their real-time supply or demand, expressed through a probability distribution. The optimal forward decision is derived in both cases, providing extensions to the recent literature on this topic. In particular, the case where demand is elastic in addition to uncertain is addressed in detail. Finally, we analyze the integrated forward market where buyers and sellers of random energy interact with dispatchable sellers to determine a clearing price.