Proposition of a Portfolio optimization System to Manage a Commercial Virtual Power Plant in the Brazilian Free Energy Market

In face of the possibility of freely trading energy in the Brazilian market, a model is proposed to define an optimal contracting strategy for a Commercial Virtual Power Planet (CVPP) for years ahead. The idea behind the CVPP is to aggregate loads in order to obtain contractual benefits, acquiring long-term contracts at lowest prices and taking advantage of the complementary nature of the load profiles when settling the differences between consumption and contracts. The model, called Portfolio optimization System (POS) – in Portuguese, “Sistema de Otimização de Portfólio” (SOP) –, is based on Mixed-integer Linear Programming (MILP) and aims to maximize profit, considering a certain level of risk, represented by the Conditional Value-at-Risk (CVaR). In this paper the motivation behind the model and its potential market value as a tool for portfolio management, especially for energy retailers, are presented. With the Brazilian Energy Market business rules defined, a case study is proposed in order to compare optimized long-term contracting and short-term contracting without any optimization. The profit resulting from the use of the tool is valued at 31% in this case study.