Bidding Strategy by using Bi-Level Optimization for Generation Company in Electricity Market and Carbon Emission Rights

Power companies need to decrease their carbon emissions as part of worldwide efforts to tackle climate change. Companies can achieve this by taking part in a carbon trading system, where they can buy and sell the privilege of emitting a specific amount of carbon. Power firms consider this expense into their business strategy to optimize their electricity and carbon trading strategies by factoring carbon costs' long-term profitability. This model consists of two main components: first, determination of the quantity of carbon credits bought by the generation company at the beginning of the year, second changes in monthly trading volume. With an objective to purchase at a lower price, the model assesses the monthly electricity market bids of the power company. In making judgments, the corporation should consider the remaining carbon credits, the penalty for exceeding the emissions limit, and the competitors' bidding strategies. This model determines the best electricity bid to help the company generate the maximum profit monthly. Simulations show that if the carbon emissions penalty is higher, power companies buy more carbon credits and raise electricity costs. This bi-level model helps power companies coordinate carbon trading and electricity market bids with an aim to balance pollution control and financial performance.