The inherent uncertainty of pool prices, together with the sequential evolution of price data over time, leads to a sequential optimization-under-uncertainty.
A realistic and trader-intuitive decision framework for the producer to maximize the value of the generation assets, consists of the following:
- At the beginning of the planning horizon (say 1 year), the producer decides whether or not to sign the available traded contracts (week-ahead, months-ahead, quarters-ahead and year-ahead). The volumes underlying these decisions should be optimized taking into account all possible scenarios of pool prices (simulated), physical constraints of the generating units, the probability of shut-down and subsequent decisions throughout the considered planning horizon.
- For each realization of the hourly pool prices during the first week of the planning horizon, the producer should decide on the amount of energy to be sold in the pool each hour of this first week.
- At the beginning of the second week of the planning horizon and for each realization of the pool prices during the first week, the producer should decide whether or not to sign the weekly contract pertaining to this second week, as well as any available trading contracts. In making such decision, the producer needs to adjust the previous positions in months-ahead, quarters-ahead, etc. This decision should be made taking into account subsequent decisions throughout the remaining period of the planning horizon.
- During each hour of the week throughout the planning horizon, the producer should repeat the same kind of decisions described in step 2 until the last week of the planning horizon.
- At the beginning of each week during the planning horizon, the producer should repeat the same kind of decisions described in step 3 until the next to the last week of the planning horizon.