Optimal investment and bidding strategies for wind power in electricity and green certificates markets

Abstract

The transition to Renewable Energy (RE) is essential for addressing the growing energy demand and meeting the global sustainability goals. Following market trends, this work simultaneously investigates two key aspects: the strategic investment and bidding decisions of an RE producer, and the hourly coordination of Green Certificates Market (GCM) and Electricity Market (EM). To address these aspects a bilevel optimization model is developed. The upper-level problem seeks to maximize the strategic investor's profits, while the lower-level problems sequentially clear the EM and GCM. The model links electricity demand with green certificates demand, and the share of RE in the energy mix with the availability of green certificates. Employing Karush-Kuhn-Tucker conditions, binary expansion, and duality theory, makes the model solvable by commercial solvers. Applied to a modified Pennsylvania-New Jersey-Maryland (PJM) 5-bus system and the IEEE 24-bus test system; the model shows that GCM encourages new RE investments. Strategic bidding in EM enhances these investments by driving down EM prices, securing a growing market share for the RE producer. This price reduction is combined with capacity withholding when needed to prevent zero-price scenarios. Moreover, higher Renewable Portfolio Standard (RPS) targets or increased rival offering prices boost GCM and EM profitability, thereby positively impacting investment decisions. Contrarily, lower wind capacity factors negatively impact new investments as they lead to higher EM and GCM prices.