Inventing and Assessing Simple Heuristics for Bidding in Wholesale Electricity Markets

Jake Atkinson, Richard Allmendinger, Joshua D. Knowles

Abstract: In areas of commerce, fast and frugal heuristics have a demonstrated history of forecasting as or more accurately than complex strategies in situations of uncertainty. Financial participation in the deregulated electricity market requires accurate forecasting and presents an opportunity for the implementation of heuristics by traders seeking to arbitrage. Developmental research was undertaken to invent and assess simple heuristics for bidding in wholesale electricity markets. Two heuristic price-adjustment bidding strategies were developed, providing modest returns relative to existing strategies, greater risk aversion and reduced computational complexity.