This article has been accepted for publication in a future issue of this journal, but has not been

fully edited. Content may change prior to final publication. Citation information: DOI 10.1109/TII.2019.2932107, IEEE
Transactions on Industrial Informatics
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IGDT based Complementarity Approach for Dealing

with Strategic Decision Making of Price Maker VPP
Considering Demand Flexibility
Farhad Samadi Gazijahani, Javad Salehi, Member, IEEE
Abstract—This paper outlines a novel bi-level decision-making PCHP , PWT , PPV Generations of CHP, WT and PV units
framework for a price-maker virtual power plant (VPP) to PSD
ch ,Pdis
SD Charging/discharging powers of storages
participate in both day-ahead and balancing oligopoly markets λDA , λRT DA and RT market clearing prices
considering multiple forward contracts. In principle, VPP operator ODA DA
t,j , Pt,j
Offering price and power of jth GENCO at DA market
RT RT
with having the possession of financial transmission rights, can Ot,j , Pt,j Offering price and power of jth GENCO at RT market
manage its financial risk through trading electricity among various Δ+ ,Δ- Positive and negative deviations at RT market
markets such as centralized pool and contract markets aimed at R+ ,R- Positive and negative imbalances at RT market
maximizing its own profit and minimizing the associated risk. xSD
ch ,ydis
SD Binary variables for charging/discharging of storages
Besides, VPP operator will be able to optimize its procurement BDA
t,i Dt,i
, DA Bidding price and power of ith retailer at DA market
RT RT
expenditures by incentivizing flexible demands proportion to Bt,i , Dt,i Bidding price and power of ith retailer at RT market
different electricity tariffs. In the proposed bi-level model, the VPP PD ,PD Increased/decreased RTP demand
aggregator strives to maximize its own profit at the upper level while β, β Binary variables for increased/decreased demand
ISO seeks to clear both markets at the lower levels with an eye to
PBC,S BC,B
t,b , Pt,b
Sell/buy powers of bilateral contracts
maximizing social welfare. Each lower level is then replaced by its BC,S BC,B
complementarity slackness conditions and consequently is recast as ut,b , ut,b Binary variables to sell/buy power to/from BC
mathematical program with equilibrium constraints that can be ODA,vpp , PDA,vpp Offering price and power of VPP at DA market
solved using off-the-shelf software packages. Furthermore, the ORT,vpp , PRT,vpp Offering price and power of VPP at RT market
uncertainty pertaining to renewables has been envisaged through BDA,vpp , DDA,vpp Bidding price and power of VPP at DA market
information gap decision theory resulting in robustness/opportunity BRT,vpp , DRT,vpp Bidding price and power of VPP at RT market
function to deal with self-scheduling of VPP. This paper ends up with
different illustrative case studies through performing after-the-fact I. INTRODUCTION
actual market data to verify the applicability of the model.

Index Terms—Profit maximization, Virtual power plant, Demand

flexibility, Uncertainty modelling, Renewable energy.
N owadays the power sector has globally experienced a
significant progress in the deployment of scattered
renewable energies due to their environmentally-friendly
nature and energy shortage crisis [1]. Despite the fact that these
Nomenclature resources can bring substantial benefits for power systems,
A. Indices nevertheless, their small size and alternating essence are among
b Index of bilateral contracts the most important challenges which have encountered for lack of
t Index of time
i Index of retailer participation in the liberalized electricity markets [2]. Actually,
j Index of GENCO these clean resources have usually been traded at zero marginal
l Index of lines cost as well as their progressive influence leads to lower market
B. Parameters prices. [3]. To do so, the persistent and consistent trend towards a
Cmin ,Cmax Minimum/maximum cost coefficients of CHP
more competitive electricity market and the fast upward
∆PCHP Allowable operating zone of CHP
PCHP CHP infiltration of distributed energy resources (DER) require proper
min ,Pmax Minimum/maximum powers of CHP
Rmax
up ,R max
dow Ramp up and down of CHP platform and policies to handle both emerging technical and
λBC,S BC,B
t,b ,λt,b
Sell/buy prices of bilateral contracts economic challenges for real-time operation condition.
PSTG Generated power of PV at standard test condition To overcome these problems and also reduce the complexity of
GING ,GSTG Irradiance of ambient and standard test condition small-scale DER management by independent system operator
ℓ, TC ,Tref Coefficient, cell and reference temperatures of PV (ISO), decentralized management of DER that are integrated with
CWT , CPV , CSD Cost coefficients of WT, PV, and storage devices each other seems to be beneficial and cost-effective [4]. This is
SOCSD t
State of charges of storage devices at hour t
where the concept of virtual power plant (VPP) technology comes
ηSD ,ηSD
ch dis
Charging/discharging efficiencies of storages
into the picture. The VPP is an internet of things based smart
SOCSD SD
min ,SOCmax
Minimum/maximum SOC of storage devices
control center, in the form of a business coalition that can accrete
PSD SD
min ,Pmax Minimum/maximum powers of storages
Earr ,Edep Energies for arriving and departing of EV various types of amenities such as disparate DERs, demand side
SOC0 Initial charge of storage devices facilities and storage devices (i.e., batteries and electric vehicles
LPF,LPF Maximum/minimum load power factors (EV)) as members of a coalition in order to intensify theirs
DR,DRmax Potential and maximum of DR program visibility within electricity markets [5]. Actually, VPP can
PD0t Initial demand of VPP before applying RTP aggregate capacity of different type of DERs and demand entities
ΠRTPt Price tariff of RTP program at hour t which may be dispersed in different points of network to make
KDER, φDER Total operation cost and time of DER
contracts in the power market and to bid services to the ISO.
max
f Maximum power flow of lines
α, Γ(t) Radius and set of uncertainty in IGDT With regards to the concept of VPP and given the significant
C. Variables progress and developing of advanced metering infrastructure over
Farhad Samadi Gazijahani and Javad Salehi are with Department of
Electrical Engineering, Azarbaijan Shahid Madani University, Tabriz, Iran
(e-mail: f.samadi@azaruniv.ac.ir, j.salehi@azaruniv.ac.ir ).
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smart power grids, it is possible to integrate and combine resources are implicitly contemplated to intensify the
heterogeneous DER and dispatch-able demands as a single entity, flexibility of VPP in competition with other participants.
while covering the risk associated with the uncertainty in the VPP 3) To make the proposed model computationally compliant,
coalition [6]. In addition, the integrated coordination of disparate KKT optimality conditions and strong duality theory are used
DER under the VPP concept will generate surplus profits relative to properly recast the problem as a mathematical program
to the manner in which these resources are individually with equilibrium constraints (MPEC).
participated in the business interactions [7]. So, the VPP provides 4) A non-probabilistic decision-making instrument based on
an opportunity for owners of small-scale resources to participate information gap decision theory (IGDT) is also extended to
in the energy market at an acceptable risk level [7]. Under this make the VPP less vulnerable against uncertainty.
context, developing an effective strategy for VPP participation in The remainder of this paper is categorized as follows. Section II
the power markets is among top priorities for private sector. demonstrates the modelling of hybrid DERs within the VPP; the
VPPs are not only used to allow DERs for marketing energy problem formulation is presented in Section III; the concept of
trading but also play as an autonomous part in improving the proposed IGDT is explained in Section IV and the obtained
power system flexibility [8]. In previous literature, for example, results in a case study are shown and discussed in Section V.
commercial VPPs have usually used for economic targets through Finally, the relevant conclusions are provided in Section VI.
participation in energy markets [9]-[11] and ancillary services
such as reserve markets [12]. In [13], an integrated strategy for II. VPP MODELLING
day-ahead offering and real-time operation of wind farm-energy
It is assumed that the VPP has two different aggregators to gather
storage has been proposed to maximize its overall profit. Besides,
both heterogeneous DERs (i.e., wind turbine (WT), photovoltaic
providing an appropriate platform that authorizes demand
(PV) and power-only CHP units) and demand side management
response (DR) resources to contribute in the electricity markets
facilities (i.e., DR resources, EV aggregator and battery energy
can significantly improve both VPP business and power system
storage (BES) devices) to contribute in the power markets. The
flexibility under different operating situations [10]. Tremendous
VPP operator as a price maker agent, supplies its energy
efforts have been devoted to utilize DR programs to achieve
deficiency from the market and sells excess productions of DERs,
different goals like minimizing operating costs, harnessing the
if any, to these markets. Under these situations, VPP operator
risk of market participation, decreasing market price spike,
strives to maximize its own profit by arbitrage in centralized pool
mitigating of renewables fluctuating and curtailments [14]-[16].
and forward markets considering point-to-point FTR of system.
On the other side, owing to limited predictability and inevitable
A. Component Modelling
error in the forecasting of renewable generations in the real-time
operation, beneficial decision-making approach must be employed In this section, the mathematical modelling of DERs installed in
for VPP to predict the harmful effect of uncertainty on its profit. the VPP are given.
In this regard, various methods have already offered to propound 1) CHP units
uncertainty with dissimilar properties and assumptions such as The employment of CHP systems provides opportunity for VPP
stochastic scenario-based programming [7], [17], [19], fuzzy operator to simultaneously increase its economic profit and also
mathematics [8], and robust optimization [10], [11], [18]. prepare ramp flexibility in real time conditions [19]. For efficient
Although the VPP bidding problem has been reported in prior modelling of CHP operating cost, the quadratic fuel cost function
literature, but many challenging issues still remain that should be is linearized by enforcing piecewise approximation approach.
addressed properly. Based on our scientific information, there is Equation (1) shows linearized cost function of CHP and its
no work that investigated the arbitrage of price-maker VPP in prohibited operating zone (POZ) over scheduling horizon time
both day-ahead (DA) and real-time (RT) oligopoly markets restricts by (2), where ∆PCHP shows difference between maximum
considering multiple forward contracts. Further, prior references and minimum active powers that CHP units can provide. Note that
have not extensively considered simultaneous demand flexibility in this paper the power-only CHP unit has been used where its
and emerging technologies to participate in the strategic bidding dispatching must be done under ramping up/down rates (3)-(4).
problem under financial transmission rights (FTR) concept. On
the other hand, previous works have mostly proposed probabilistic
Kt
CHP
 Pt
CHP

  C
max
C
min
 / P CHP
 (1)
Pmin  Pt  Pmax , t
CHP CHP CHP
and possibilistic methods to deal with uncertainties that are not (2)
effective when the VPP operator encounters “severe” uncertainty
 Pt 1  Rup , t
CHP CHP max
where neither membership function nor probability function of Pt (3)
uncertain parameters are available. The present work aims to
Pt 1  Pt  Rdow , t
CHP CHP max
(4)
tackle the remaining shortcomings and flaws of prior literature by
providing the following contributions: 2) WT systems
1) An arithmetically efficient bi-level mixed integer linear The total available power of WT is a function of wind speed and
programming (MILP) is offered to deal with strategic bidding turbine characteristics. In this paper, the power generated by WT
of a price-maker VPP to participate in both DA and balancing is modelled as a linear function of wind speed [18]. The POZ and
oligopoly markets considering bilateral contracts and FTR. maintenance costs of WT can be conceived as (5)-(6).
The proposed model maximizes the profit of VPP aggregator Pmin  Pt  Pmax , t
WT WT WT
(5)
at the upper level and clears both markets aimed at
C  Pt , t
WT WT WT
maximizing social welfare of system at the lower levels. Kt (6)
2) VPP operator optimizes its procurement costs and satisfy the 3) PV modules
risk limitations by incentivizing flexible demand proportion The output power of PV modules is related to the sun radiation
to real-time electricity tariffs. Besides, diverse aggregated and the environment temperature in which PV panels are located

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[18]. The POZ, power generation and operation cost of PV can be by DR aggregator, and then provided to the VPP operator in
calculated by (7)-(9), respectively. exchange for reducing their billing costs. Mathematical form for
Pmin  Pt
PV PV
 Pmax , t
PV
(7) setting the amount of increased and decreased load consumption
in the presence of RTP can be formulated as follows.
 1  T 
GING
P   Tref Pt  1  DRt  Pt  Pt  Pt
PV STG D D0 D D
Pt C
(8) (18)
GSTG
0  Pt  LPF  Pt   t
D D0
K t  C  Pt , t (19)
PV PV PV
(9)
4) Storage devices 0  Pt  LPF  Pt   t
D D0
(20)
In this paper, two different energy storage devices including BES
and EV have been used to store the excess powers of renewable
generations or purchased power from the markets when the price
P t
D
  Pt
D
(21)
t t
of electricity is low (i.e., off-peak periods) and then release the
DRt  DR , t
max
(22)
stored energy to supply the peak load of VPP or sell to the market
when market price is high [19]. By collecting a large number of  t   t  1, t (23)
BES and EV as a virtual demand resource via VPP operator, it can
participate in energy markets on behalf of the BES and EV where equation (18) denotes the specifications of demand profile
owners to increase their profits [20]. Since driving patterns cannot after applying RTP. Constraints (19) and (20) restrict increasing
be perfectly forecasted, we use a timetable to recognize the travel and decreasing bounds of RTP demand, respectively. It is worth
pattern of EV owners over the scheduling horizon. mentioning that increased/decreased demands during the day must
The state of charge (SOC) of storage devices to satisfy the be equal to each other as (21). Therefore, by implementing RTP
instantaneous energy balance between the sum of the stored and program, VPP operator can supply all its demands with minimum
produced energy can be expressed by (10). Note that in the EV, an cost. Finally, the portion of the demand that can be shifted to
dep other periods is shown by (22) and constraint (23) is also used to
additional term as Earr
t -Et should be added into (10). The limits
prevent simultaneous decreasing/increasing of RTP demand at
on charging/discharging powers and SOC capacity are enforced
each period. It should be emphasized that consumers are flexible
through constraints (11)-(13). Equation (14) shows the initial SOC
in conjunction with price tariff that the VPP operator determines.
of storages and their powers determine through equation (15).
The changes in consumption pattern of the RTP clients are paid
Constraint (16) has been also utilized to avoid simultaneous
by the RTP price which is assumed to be DA market price.
charging/discharging of storages at one time. Finally, the arbitrage
cost of storages can be calculated by (17). B. Oligopoly Market Modelling for Price Maker VPP

SOCt  SOCt 1  t Pt , ch .ch  Pt , dis / dis , t
SD SD SD SD SD SD
 (10) In this paper, a price maker VPP is considered that is capable of
altering market price due to having more share of market as well
SOCmin  SOCt  SOCmax , t
SD SD SD
(11) as placing in a strategic position on the network. This agent is
more flexible than other players who participated in the market
Pch ,min  Pt , ch  Pch ,max , t
SD SD SD
(12)
because possesses several instruments like various DER units and
Pdis ,min  Pt , dis  Pdis ,max , t
SD SD SD
(13) also FTR of some lines. Since in this paper the merchant VPP acts
as a price-maker agent, therefore, the offering strategy of VPP
SOC  SOC
0 T
(14) directly will effect on the market clearing prices (MCP). To model
 Pt , ch  Pt , dis , t this issue, the price quota curves are used to specify the MCP as a
SD SD SD
Pt (15)
function of the generation and demand quota of price maker VPP
xt , ch  yt , dis  1, t
SD SD
(16) for a given hour [22]. By utilizing the hourly price quota curves

K t  C  xt .ch . Pt , ch  yt , dis . Pt , dis , t
SD SD SD SD SD SD
 (17)
we will be able to formulate the market participating problem to
maximize the profit of VPP operator and determine amount of
5) Demand Flexibility power that contributes to serve the demand at each hour. In the
One of the most beneficial solutions to reduce the procurement oligopoly markets, the price maker VPP aims to maximize its own
costs and smooth locational marginal prices (LMP) in the profit by modifying the MCP as a result of its market power as
restructured environment is DR program, in which end-use well as altering its own generation level. The MCP can vary
consumers manage amount of their energy usage by changing the between two extreme conditions; the minimum MCP occurs when
consumption pattern from peak periods to off-peak periods in the price maker VPP offers all its available units at prices close to
response to variations in the electricity price over time or other their corresponding marginal costs and also the maximum MCP
financial incentives [21]. For this purpose, real time pricing (RTP) happens when the VPP offers no power because the cheap units of
program is developed to enhance the efficiency and flexibility of the VPP (i.e., renewables) are not allocated to produce the power
VPP. In fact, the RTP can provide a substitute for DERs of VPP (i.e., exercising market power). In between these two extreme
through serving a local peaking resource and thereby assist these states, the actual MCP will be a stepwise monotonically
resource adequacy when the VPP has encountered power shortage decreasing function of the power-quota of the VPP.
and market price for purchasing the power is relatively high.
In the RTP program, the electricity price varies continuously III. PROBLEM FORMULATION
during the day, directly reflecting the wholesale electricity market This paper deals with optimal offering strategy of a price-maker
price that links hourly prices to hourly changes in the DA market VPP, which comprises of heterogeneous DER units and
[7], [21]. In the proposed RTP, dispatch-able loads are gathered consumption management facilities, who aims to participate in

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both centralized pool and forward markets. The ultimate goal of Kt

DER
 Kt
CHP
 Kt  Kt  Kt
WT PV SD
(33)
the VPP operator is to maximize its own profit in conjunction
with the minimization of associated risks. To this end, a novel bi- Subject to (1)  (23) (34)
level optimization model is formulated, where the uncertainty lies
in the renewable generations. Moreover, DA-RTP scheme is B. Formulation of Lower Levels
incorporated into the VPP portfolio to reduce its procurement In the lower-levels, the market clearing process is performed for
costs and harness the risk of market participation. The proposed both DA and RT markets that is formulated as minimization of
bi-level framework consists of an upper level that represents the minus social welfare. After determining offering/bidding curves
VPP profit maximization problem and two lower levels that by VPP operator and other competitors who are participated in the
represent the DA and RT market-clearing process. markets, they submit a list of offering power blocks and their
corresponding prices to the ISO for every hour. The ISO can use
A. Formulation of Upper Level either single-round or multi-round market clearing mechanism
1) Objective Function through running least-cost unit commitment problem in the DA
The proposed problem is run from VPP operator standpoint that market with taken into account the security evaluation of system
tries to maximize its own profit by arbitrage in pool and forward and executing economic dispatch problem in the RT market aimed
markets under FTR of limitations computed by expected revenues at maximizing social welfare of system [23]. The DA market
minus incurred procurement costs during scheduling horizon: clearing process is formulated in (35) from ISO standpoint that
Max FUp 
profit
vpp
 O DA , vpp
t
Pt
DA , vpp
 Ot
RT , vpp
Pt
RT , vpp
Bt
DA , vpp
Dt
DA , vpp includes four terms. Two first terms, respectively, are the incomes
achieved by merchant VPP and other GENCOs who are
t
participated in the DA market. Two next parts indicate the bidding
 Bt
RT , vpp
Dt
RT , vpp
 Ot
DA , vpp  
Rt  t  Ot
DA , vpp
Rt  t  t
  DER
Kt
DER
 (24) costs for purchasing power from DA market for VPP and retailers.

 u BC , S
t ,b
t ,b Pt ,b
BC , S BC , S
 ut ,b t ,b Pt ,b
BC , B BC , B BC , B
  P t
D0
 Pt
D
  RTP
t Min FL
DA


 OtDA,vpp . Pt DA,vpp   DA DA
Ot , j . Pt , j
b
t  jGENCO


Equation (24) consists of nine major parts, where two first terms (35)
denote revenues obtained from participation in DA and RT
markets (i.e., offering strategy); the next two terms are also shown
B t
DA , vpp
.D t
DA , vpp
  DA
B .D
t ,i
DA
t ,i
iRetailer
purchasing powers required by VPP from DA and RT markets
(i.e., bidding strategy) and the next two parts, respectively, Dt
DA , vpp
  Dt ,i Pt
DA DA , vpp
  Pt , j  0, t : 
DA DA
(36)
iRetailer j GENCO
declare the incomes and costs because of positive and negative
0  Pt  Pt , t :  t ,  t
DA , vpp max min max
imbalances in the real-time operation resulted from the prediction (37)
error of renewables. Moreover, the next two terms illustrate the
0  Dt  Dt , t :  t ,  t
DA , vpp max min max
operation costs of DER units as well as energy procurement cost (38)
due to bilateral contracts of VPP (options) and eventually, the last 0  Pt , j  Pj , j :  j ,  j
DA max min max
(39)
part represents implementation cost of RTP program executed by
VPP operator. It should be emphasized that DA and RT market 0  Dt ,i  Di , i : i , i
DA max min max
(40)
clearing prices will be determined in the lower levels, therefore,
the proposed model is linear and thus convex.  fl
max
 utBC,b , S FTRl  fl  fl max  utBC,b , B FTRl , l : imin , imax (41)
2) Constraints fl  Bl ( s   r ), l : l (42)
The proposed market participation problem is accomplished under
various technical constraints. Constraints (25) to (29) restrict the Equation (36) guarantees the power mismatch in the DA market
offering/bidding powers of VPP in the DA and RT markets and ensuring the balance between demand and supply. Constraint (37)
bilateral contract limits, respectively. The available VPP powers is enabled when the VPP aims to sell the power to the DA market
to offer or bid to markets for selling or purchasing powers are while the constraint (38) puts a cap on the power purchasing from
demonstrated by equations (30)-(31). Constraint (32) imposes the DA market. Constraints (39)-(40) restrict the permissible
FTR constraints on the bilateral contracts of VPP and equation selling/purchasing power for GENCO and retailers, respectively.
(33) shows the total operation costs of DERs over operation At the end, constraint (41) enforces allowable bound of power
horizon time. Furthermore, the upper level problem is performed transactions in the lines considering point-to-point FTRs and also
under technical constraints of DERs installed on the VPP (34). (42) defines the DC power flow through lines. The dual variables
are declared at the corresponding constraints following a colon.
 0, t : Ot
DA , vpp DA , vpp

 
Pt (25)
 DA  Dt
P rimal DA , vpp DA , vpp DA DA
, Pt , Dt ,i , Pt , j are primal variables of DA
 0, t : Ot
RT , vpp RT , vpp
Pt (26)
market and also their dual variables are demonstrated as
 0, t : Bt
 .
DA , vpp DA , vpp
Dt (27)  DA   ,  ,  ,  ,  ,  ,  ,  ,  ,  , 
Dual DA min max min max min max min max min max
It
t t t t j j i i i i

 0, t : Bt
RT , vpp RT , vpp
Dt (28) should be also notified that the offering and bidding prices of VPP
0  Pt BC , S  P max , 0  Pt BC , B  P max , t (29) determine in the upper level, thus, in the lower levels (35) they are
considered as certain parameters.
DtDA, vpp  Pt CH , BES  Pt CH , EV  Pt D (30) Note that similar to the DA market clearing, the RT market
 Pt  Pt  Pt  Pt  Pt
DA , vpp CHP WT PV DIS , BES DIS , EV
Pt (31) clearing process can be fulfilled. Regarding to the fact that the DA
market is cleared before RT market, therefore, offering/bidding
BC , S
ut ,b Pt ,b
BC , S
 utBC,b , B Pt ,BCb , B  FTRb , t (32)

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prices of players in the DA are considered as parameters in RT well as the complementarity constraints (54)-(63). The non-linear
clearing, which in turn causes the model being linear and convex. terms are linearized via strong duality theory and big-M method
With respect to presented bi-level problem, each lower-level (Fortunty-Armat approximation) [24]. Similar to DA market
problem should be replaced by its first-order KKT optimality mechanism, the dual constraints of RT market clearing problem
conditions with aim to convert into single level MPEC problem can be represented and linearized. At the end, the constructed bi-
owing to the fact that the lower levels are linear and convex. To level optimization problem has been converted into a single level
derive such conditions, the primal-dual transformation [24] MILP model by replacing the linearized KKT optimality
approach is utilized to apply on each lower-level problem. By conditions of lower level problems into the upper level problem.
performing this transformation, each lower-level problem is
replaced by a collection of primal and dual constraints plus a IV. IGDT BASED UNCERTAINTY MODELLING
strong duality equality which subsequently could be recast as a The sharp fluctuation of renewables makes substantial challenges
single-level MPEC. The dual constraints of DA market clearing in the decision-making proceeding. This uncertainty can lead to
problem (35)-(42) are demonstrated as (43)-(52). In addition, the unfavorable situations, which in turn causes to decrease the profit
dual equation of DA market has been indicated as (53) that of VPP operator. Various methods are already available in
enforces the equality of its primal and dual objective function literature to envisage the uncertainty with diverse properties [25].
values at the optimal solution. Choosing an appropriate method among existing methods should
  t  t  0, : Pt , t
DA , vpp DA max min DA , vpp
Ot (43) be done consciously so that being compatible with existing
information about the nature of uncertainty and also must justify
Ot , j     j   j  0, : Pt , j , j
DA DA max min DA
(44) the required implementing time. To overcome the shortcomings of
 Bt
DA , vpp

DA
 t
max
 t
min
 0, t : Dt
DA , vpp
(45) antecedent approaches for modelling sever uncertainties, an
effective IGDT technique is introduced here.
 Bt ,i    i  i  0 : Dt ,i , i
DA DA max min DA
(46) The main objective of IGDT is to acquire the optimal set of
decision variables in such a way that increases the robustness
 l   l  l  l  l  0 : fl , l
s r max min
(47) against uncertainty or maximizes the chance of success [26].
max min Modelling of IGDT approach can be formulated in the form of
t  0;  t 0 :  t , t t
max min
(48) two inviolability ways including robustness function (i.e., risk-
max min averse strategy) and opportunity function (i.e., opportunity seeker
j  0;  j  0 : j ,j j
max min
(49) strategy) [26]. Risk-averse decision maker tends to set lower
max min profit target that it can accept by maximizing the tolerance against
t  0;  t 0 :  t , t t
max min
(50) the uncertainty, while risk seeking decision maker seeks to reach
max min
higher profit target that it wants to pursue through augmenting the
i  0; i 0 :  i , i i
max min
(51) chance of success in objective function.
In this paper, the opportunity strategy is used to aid the VPP
max min
l  0; l 0 : l , l l operator at finding the optimal decision variables that maximizes
max min
(52)
its profit as much as possible. It should be emphasized that this
Ot
DA , vpp
. Pt
DA , vpp
  Ot , j . Pt , j  Bt
DA DA DA , vpp
. Dt
DA , vpp
  Bt ,i . Dt ,i 
DA DA
optimization process must be carried out in such a way that all
jGENCO iRetailer constraints are being located at their acceptable levels. Actually,
the robustness function represents the maximum level of
.t  Pj .  j  Dt .  t  Di .  i  fl .l  0 : t
max max max max max max max max max max DA
Pt
uncertainty in which the minimum acceptable profit can be
(53) obtained (i.e., tolerant profit). On the contrary, the opportunity
The complementarity slackness conditions corresponding to the function refers to the minimum level of uncertainty that allows for
inequalities of MPEC of DA market can be shown as (54)-(63). inclusive success (i.e., maximum windfall profit). In other words,
0  Pt  t  0, t the robustness and opportunity functions are two sides of the same
DA , vpp min
(54)
coin that indicate the adverse and favorable aspects of uncertainty,
0  Pt  max
 Pt
DA , vpp
 t
max
 0, t (55) respectively. First, the proposed problem solves regardless of
uncertainty (i.e., base case (FBase )). In other words, the uncertain
0  Pt , j  t  0, t , j
DA min
(56)
parameters are located at their forecasted values (γ̅) and therefore
0  Pj  max
 Pt , j
DA
 t
max
 0, t , j (57) in this case, the uncertainty is ignored.
To apply the IGDT technique, the aforementioned strategies are
0  Dt  t  0, t
DA , vpp min
(58) effectively performed, where different risk attitudes can be
0  Dt  max
 Dt
DA , vpp
 max
t
 0, t (59)
reasonably quantified by setting different profit targets. The
robustness and opportunity functions can be formulated as (64)
0  Dt ,i  t  0, t , i and (65), respectively, which (64) specifies the maximum level of
DA min
(60)
uncertainty with respect to the fact that the earned profit will not
0  Di  max
 Dt ,i
DA
 t
max
 0, t , i (61) be less than the critical profit (fR ); equation (65) also determines
0  fl  l
min
 0, t , l (62) the minimum level of uncertainty in which maximum windfall
profit is as large as fO . Note that the critical profit usually
0  fl  max
 fl  l  max
 0, t , l (63) determines by decision maker as a percentage of decrease (βR ) in
The MPEC presented as (43)-(63) has two sources of base case profit (66) and the maximum permissible profit can be
nonlinearities; non-linear terms in the objective function (24) as earned as a percentage of increase (βO ) in profit of base case (67).

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 F

 t  Ξ, f R   max  : min F  Ξ,    f R
 
(64)
the 2009 National Household Travel Survey (NHTS) [29]. The
summaries of the driving pattern information are given in Table I

  Ξ, f   min  : max F  Ξ,    f 
based on number of each type of EV owners, the start and end
t O O
(65) time of their connection to the grid and the average trip duration
F  
for each EV owners. It is also assumed that the EV owners drive
f R  1   R  FBase (66) with a constant speed and at an average rate of 2 kWh. The
maximum participation percentage of price-responsive demand is
fO  1  O  FBase (67) considered to be 20%. The forecasted wind speed, irradiation and
   , WT PV
 (68) daily temperature for calculating available capacity of WT and PV
are obtained from [30].
   
 
Ξ  ,    :

  .  (t )  ,   0(69) TABLE I
  SCENARIOS FOR LOCATIONS OF DIFFERENT EVs.
where equation (68) shows the vector of uncertain parameters Type Number Parked time (hour) Trip duration (hour)
(WT and PV generations (γ)) and also equation (69) denotes the Home Work Home to work Work to home
EV1 9000 1-6, 6-24 8-16 1 1
envelope-bound info-gap model of uncertain parameters. In this EV2 5000 1-5, 19-24 --- 2 2
equation, α is a vector that consists of two components (αWT PV
t ,αt ). EV3 6000 --- 8-16 2 2

V. SIMULATION RESULTS B. Numerical Results

A. Data and case study
In this section, the proposed arbitrage strategy for a price-maker
VPP is implemented on a case study and numerical results are
presented and discussed to validate the effectiveness of the model.
In particular, different aspects of problem such as VPP power
rating and DR participation, as well as uncertainty modelling by
means of IGDT approach are analyzed in detail. A case study
based on modified PJM 5-bus system [27] is employed as
presented in Fig. 1 to illustrate the underlying concepts and
performance of the model. The VPP operator has already
purchased the FTR of three lines of system in the FTR monthly
auction and has concluded three bilateral contracts with
GENCO1, GENCO2 and Retailer1 to buy/sell its required/surplus
powers when needed. These contracts could significantly reduce
the devastating consequences of price spikes for VPP.
Retailer1
D GENCO3
The price-maker VPP aims to maximize its profit by arbitrage in
both oligopoly pool and forward markets. The maximum trading
powers which VPP operator can purchase/sell from/to both
markets are 200/100 MW. At each time, the VPP operator by
accomplishing a price-based unit commitment within the VPP,
determines the amount of power exchanges between VPP and
different markets. In the case of VPP faces with power shortages,
the VPP operator participates in the electricity markets as a
retailer and submits its bid to the market to supply its demand. On
the contrary, when there is power surplus in the VPP, the VPP
operator decides to sell it to the market, therefore, it participates
as a GENCO. Also, the VPP operator will prefer to execute its
bilateral contracts with GENCOs when the electricity price in the
pool is high. By doing so, the VPP operator will remain safe from
fluctuations in the price of RT market.
80
hour6 hour4
Offer/Bid price[$/MWh]

E Limit=240MW
70 hour17 hour19
Brighton 60
Sundance

50
VPP GENCO1
GENCO2 40

30
A B Load C -130 -100 -70 -40 -10 20 50 80 110
Park City Center Solitude
Offer/Bid power in the DA market[MW]
80
hour13 hour5
Offer/Bid price[$/MWh]

Fig. 1. Modified PJM 5-bus test system with integration of VPP.

70 hour16 hour6
The proposed optimization problem has been solved by CPLEX 60
12.5.1 [28] under GAMS environment on Intel Xeon Core i7-
7500U laptop with a processor clocking at 3.50 GHz and 8 GB 50
RAM under 64-bit Windows 10 system. The average running time 40
required to obtain the results of the problem is 172.05 seconds,
which is compatible with the requirements of such a large scale 30
-50 -25 -100 0 -75 25 50 75 100 125 150
problem. Both absolute gap and relative gap are set to be zero Offer/Bid power in the RT market[MW]
(i.e., optca=0, optcr=0) to reach the best global optimal solution. Fig. 2. Offering/Bidding curves of VPP in the DA and RT markets.
The technical information of DER units installed in the VPP
consisting power-only CHP, WT, PV and storage aggregations are The offering curves of VPP submitted to both DA and RT
obtained from [17], and [19]. It is assumed that there are two markets are depicted in Fig. 2 for some hours. In the DA market,
different types of EV owners within the VPP (Commuting and for example, hour 19 is divided into two parts; one the positive
Ride Service EVs). The information required to model the travel powers which have prices larger than $59.42/MWh and means
pattern of EV owners consist of trip duration of EVs, start and end that the VPP sells energy to the DA market and one the negative
time of their trip and average distance travel which obtained from powers which have prices lower than $59.42/MWh which means

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that the VPP purchases energy from the DA market. This way, it 80 75
takes advantage of comparatively low prices to supply the demand

DA market price[$/MWh]

RT market price[$/MWh]
75 65
and/or to store energy in the storage unit. In hour 6, the prices are
70
comparatively high and the offer curve submitted by the VPP 55
does not contemplate the option of buying energy in the DA 65
45
market at this hour. The offer curve in hour 17 is similar to that in 60
hour 15. It is also divided into two parts, bid and offer curve, 55
35
depending on the DA market price. 25
50 DA price with DR DA price without DR
Next, we analyze how the proposed RTP program effects on
RT price with DR RT price without DR
the clearing prices of DA and RT markets. The cleared market 45 15
prices with and without applying RTP are indicated in Fig. 3. As 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Time(hour)
can be seen, the proposed RTP program can relatively reduce the Fig. 3. DA and RT market prices with and without applying DR.
RT prices by shifting the demand of VPP from peak periods to
off-peak periods. This figure approves that, while reducing in the Results also verify that the proposed approach is successful to
demand of VPP generally decreases the MCP in that hours, but buy and store energy at low-price hours, and sell it again at
the load recovery at other hours causes to increase the MCP. An suitable times. The comparison of traded powers with and without
increase, for example, in the RT price that can be observed at consideration of RTP program clarifies that the power volume that
periods 5-7 and 19-21 because of load shifting from peak hours. is bought/sold from/to the RT market throughout the day is
On the other hand, decreasing in the MCP during the periods of decreased/increased by employing DA-RTP program. Besides,
demand reduction is relatively moderate, and for some periods with respect to this figure, it is clear that the total power traded in
(e.g., hours 6 and 13) there is no effect. In fact, the RTP program the RT market is lower than the total power traded in the DA
provide a flexible option for VPP operator in confronting with market. As a result, comparative analysis on the powers traded in
high-price conditions to reduce the risk of participation. It should the both markets concludes that the proposed DR program has
be mentioned that by applying the RTP program by VPP operator, opposite impacts on the powers traded in these two markets.
the MCP at off-peak hours of RT market is relatively increased.
100
TABLE II with DR without DR
75
Traded power in DA[MW]

PROFITS OBTAINED FROM MARKETS AT DIFFERENT CASES

50
Case Studies DA market ($) RT market ($) Forward market ($)
35322.76 12343.68 1037.41 25
Case I
Case II 32746.20 10411.38 634.77 0
Case III 33191.88 10842.54 967.54 -25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Case IV 32850.14 10364.73 890.36 -50
Case V 33492.66 11258.03 1012.38
Case VI 28745.70 8914.22 528.46 -75
Time(hour)
-100
60
To justify the superiority of the proposed method compared to with DR without DR
Traded power in RT[MW]

45
state-of-the-art approaches, six different cases are studied as:
30
 Case I: All objectives are taken into account
 Case II: FTR concept is not taken into account 15

 Case III: Market power is not taken into account 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
 Case IV: DR program is not taken into account -15

 Case V: IGDT technique is not taken into account -30

Time(hour)
 Case VI: None of the objectives are taken into account -45
Fig. 4. Traded power of VPP in the DA and RT markets.
Table II compares the profits obtained from power markets at 25
different case studies. Briefly, the simulation results observe that Retailer1
Traded power in BC [MW]

Genco1
by applying the proposed algorithm, the profits obtained from 20 Genco3
DA, RT and Forward markets will be increased by 18.62%,
15
27.78% and 49.85%, respectively.
The powers traded in the both DA and RT markets over the 24 10
hours are plotted in Fig. 4 with and without consideration of DA-
RTP program. The power purchased from DA market during low- 5
price periods is comparatively higher than the power bought in 0
high-price hours. Interestingly, we observe that by exacting DR, 0
10 12 14 2 4 6 8 16 18 20 22 24
the power purchased from the RT market is decreased compared Time(hour)
Fig. 5. Traded power of VPP in the forward market.
to case in which DR program is not considered, while the power
sold to this market is increased. Thus, the DA-RTP program is
profitable due to reduce the consumption during high price period Traded powers of VPP in the forward markets are presented in
and it makes an opportunity for VPP operator to sell more power Fig. 5. According to this figure, when the electricity price at the
in wholesale market rather than feeding contracted demands. RT market is low, the VPP operator tends to sell its power to the
Retailer. In contrary, when the electricity price in the RT market
is high, the VPP operator prefers to provide its required power

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from bilateral contracts instead of pool market. This dramatically
decreases the temporal risk due to volatility in the LMP at a
specific location over time and locational risk subject to volatility
in the LMP across space.
Finally, to investigate the flexibility of proposed IGDT tool a
sensitivity analysis has been executed as shown in Fig. 6. In this
analysis, the tolerant and windfall RT profit, i.e., βR and βO, are
increased from 0 to 20% to peruse their impacts on the uncertainty
radius. It is observed that for the robustness function, the tolerable
uncertainty increases from 0 (βR=0) to 0.3378 (βR=20%). This
means that the profit target will be increased from 12108.63 $
(base case) to 12343.68 $. On the other hand, for the opportunity
function, the tolerable uncertainty increases from 0 (βO=0) to
0.1519 (βO=20%), which confirms that the profit target is
increased by about 8.79% compared to base case. The VPP will
be more tolerable against the uncertainty by increasing the radius
of uncertainty. Note that all simulation results of this paper are
obtained for risk-seeker strategy (i.e., opportunity function) in
which maximum uncertainty radius is set to be 0.20.
0.4
Robustness/opportunity radius
0.35 Robustness
0.3
0.25
0.2 Opportuneness
βO=0 to 0.20
0.15
0.1
βR=0 to 0.20
0.05
0 [15]
12600 13600 13100 14100 14600
Obtained profit($)
Fig. 6. Variation of profit obtained from RT market.
VI. CONCLUSIONS
A novel bi-level IGDT based model was extended to derive the
optimal participating of a price-maker VPP in both oligopoly
centralized pool and forward markets. An efficient energy
management system equipped with IOT technology manages the
VPP generation and consumption along with bilateral contracts,
which behaves as a price maker agent in these markets. The
incorporation of demand flexibility into the optimization model
allows the load serving entities to manage the renewable
generation variability and deficiency and also reduce procurement
costs of VPP. By adopting the proposed participating strategy, the
VPP operator increases its expected profit with respect to the case
in which it does not behave strategically. In addition, by including
the IGDT instrument in the model, the VPP owner is able to
decide the desired profit in construction of its optimal
offering/bidding curves. Further, the proposed IGDT based model
increases the flexibility and robustness of VPP in comparison with
deterministic methods. The results have also proved that the VPP
operator can reduce associated risk by taking possession of FTR
and implementing its own bilateral contracts under situations
when the price in pool is higher than pre-specified contract price.
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This article has been accepted for publication in a future issue of this journal, but has not been fully edited. Content may change prior to final publication. Citation information: DOI 10.1109/TII.2019.2932107, IEEE
Transactions on Industrial Informatics
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Farhad Samadi Gazijahani received the M.Sc. Degree in
Electric Power Engineering from Azarbaijan Shahid
Madani University, Tabriz, Iran, in 2017. He is currently
working toward the Ph.D. degree at Azarbaijan
Shahid Madani University, Tabriz, Iran.
His main research interests include power system planning and operation,
smart grids, electricity markets, and optimization techniques in power
systems.
Javad Salehi (M’17) received his B.Sc. degree from the
University of Tabriz, Tabriz, Iran in 2006, the M.Sc. and
Ph.D. degrees from the Tarbiat Modares University,
Tehran, Iran in 2008 and 2013, respectively, all in
electrical engineering. He is currently an Assistant
Professor in the Department of Electrical Engineering, Azarbaijan Shahid
Madani University, Tabriz, Iran. His current research interests include
operation and planning of modern distribution systems, electricity
markets, and optimization techniques in power systems.

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