Risk and profit-based bidding and offering strategies for pumped hydro storage in the energy market

Pumped hydro storages (PHS) are the most common storage in the power system, which covers 99% of the total installed capacity of energy storage facilities in the world. Therefore, optimal offering and bidding strategies of PHS are essential in the energy market. Besides, various uncertainties, especially market price uncertainty is more challenging for PHS operator due to the imposed risks. Therefore, in order to optimally market-participation of these storages, in this paper a novel risk management approach called downside risk constraints (DRC) is applied to get the optimal offering and bidding strategies of the PHS. The DRC method is used along with the stochastic programming to model the risk associated with uncertainty parameter, including electricity market price uncertainty. Hence, ten scenarios are produced using the normal distribution function to model the uncertain parameter. Illustrated examples are determined how to deal with imposed risk from uncertainty by managing financial profit. Finally, according to the obtained results, using the proposed downside risk constraints, PHS operators can experience zero-risk conditions by decreasing their profit by 33% while risk-in-profit is reduced by 100% in versus risk-neutral strategy. (C) 2020 Elsevier Ltd. All rights reserved.