Analysis of the Impact of Imbalance Penalties on Virtual Power Plant Bidding Strategies and System Operational Costs in the Korean Wholesale Electricity Market: Findings and Policy Recommendations

Abstract

This paper examines how imbalance penalties influence the virtual power plant (VPP) bidding strategies and system operational costs in new Korea’s wholesale electricity market, motivated by the Jeju pilot project for the improvement of the electricity market system. Two novel models are proposed: bidding model of VPP and unit commitment (UC) models. A two-stage stochastic programming approach is developed for the VPP model incorporating hourly day-ahead bidding and 15-minute real-time operations for dispatchable distributed energy resources (DERs). To address imbalance penalties, this paper proposes convex relaxation-based reformulation of the market’s penalty formula. Subsequently, the UC framework, day-ahead unit commitment (DAUC) and real-time unit commitment (RTUC), is employed to assess how VPP bidding strategies affect system operations, quantifying and analyzing system costs and performance. The case studies explore the effects of different imbalance penalty thresholds on bidding strategies and operational outcomes, anticipating a nationwide rollout of the revised market. The findings offer insights and policy recommendations for refining renewable energy bidding system, fostering broader VPP participation, minimizing market imbalances, and effectively integrating renewable resources into Korea’s evolving wholesale electricity market.