Study on stochastic optimal electric power procurement strategies with uncertain market prices

The player in deregulated electricity markets can be categorized into three groups of GENCO (Generator Companies), TRANSCO (Transmission Companies), and DISCO (Distribution Companies). This research focuses on the role of Distribution Companies, which purchase electricity from the market at randomly fluctuating prices, and provide it to their customers at given fixed prices. Therefore, Distribution Companies have to take the risk stemming from price fluctuation of electricity instead of the customers. This entails the necessity of developing a certain method to make an optimal strategy for electricity procurement. In such a circumstance, this research has the purpose of proposing a mathematical model based on stochastic dynamic programming to evaluate the value of a long‐term bilateral contract for electricity trade, and also a project of combination of the bilateral contract and power generation with their own generators for procuring electric power in a deregulated market. © 2006 Wiley Periodicals, Inc. Electr Eng Jpn, 156(2): 32–42, 2006; Published online in Wiley InterScience (www.interscience.wiley.com). DOI 10.1002/eej.20105