Single-Unit Commitment Problems in Electricity Pool Markets

We consider an electricity generator with a single generating unit making offers of energy into an electricity pool market. For a given time period, it must submit to the pool system operator a supply function, typically consisting of a fixed number of quantities of energy and prices at which it wants these dispatched. The amount of dispatch depends on the supply function offered along with the offers of the other generators and market demand, both of which are random, but are assumed have known market distribution functions. The generator seeks an offer stack that maximizes its expected profit accounting for start-up and shut-down costs and/or ramp rates. We describe an optimization procedure based on dynamic programming that can be used to construct optimal offer stacks in successive time periods over a fixed planning horizon (typically a single trading day).