A Parametric Unit Commitment Method for Revenue Adequacy Assessment

Abstract

Unit commitment (UC), originally employed to minimize the generating cost of a vertically integrated utility, has become a basic tool for revenue adequacy evaluation by GENeration COmpanies (GENCOs). The strategic role of UC is apparent in those market environments where GENCOs are asked to internalize all costs and the relevant UC decisions within their day–ahead market bids. In this paper, a parametric UC method is presented to assess the convenience of making energy bids for marginal or nearly marginal generation units. The convenience is gauged by the basis of revenue adequacy that is on each unit's ability to cover all expenses and generate profits. Beside UC choices, the parametric UC procedure provides a market price behavior that would make it profitable to commit a certain unit for generation. A Monte Carlo simulation program is employed to find the probability that actual market prices will fulfill the revenue adequacy requirements. Market prices are handled as random variables with multivariate normal distribution, taking into account the correlation between prices at successive time periods. The parametric UC procedure and the Monte Carlo simulation are carried out by using reasonable data of generation units available to some Italian GENCOs.