A Bid-Validity Mechanism for Sequential Heat and Electricity Market Clearing

Abstract: Coordinating the operation of units at the interface between heat and electricity systems, such as combined heat and power plants and heat pumps, is essential to reduce inefficiencies in each system and help achieve a cost-effective and efficient operation of the overall energy system. These energy systems are currently operated by sequential markets, which interface the technical and economic aspects of the systems. In that context, this study introduces an electricity-aware heat unit commitment model, which seeks to optimize the operation of the heat system while accounting for the techno-economic interdependencies between heat and electricity markets. These interdependencies are represented by bid-validity constraints, which model the linkage between the heat and electricity outputs and costs of combined heat and power plants and heat pumps. This approach also constitutes a novel market mechanism for the coordination of heat and electricity systems, which defines heat bids conditionally on electricity prices. Additionally, a tractable reformulation of the resulting trilevel optimization problem as a mixed integer linear program is proposed. Finally, it is shown on a case study that the proposed model yields a 23% reduction in total operating cost and a 6% reduction in wind curtailment compared to a traditional decoupled unit commitment model.