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American J. of Engineering and Applied Sciences 2 (1):176-183, 2009 ISSN 1941-7020 ? 2009 Science Publications Corresponding Author: Azmi Saleh, Department of Electrical and Computer Engineering, Yokohama National University, 79-5 Tokiwa-dai, Hodogaya-ku, Yokohama 240-8501, Japan 176 Optimal Bidding Strategies for a Small Generation Company in a Day-Ahead Electricity Market with Bilateral Contracts Taken into Account 1 Azmi Saleh, 2 Takao Tsuji and 2 Tsutomu Oyama 1 Department of Electrical Engineering, Jember University, Jl. Slamet Riyadi 62 Jember 68111, Indonesia 2 Department of Electrical and Computer Engineering, Yokohama National University, 79-5 Tokiwa-dai, Hodogaya-ku, Yokohama 240-8501, Japan Abstract: Problem Statement: Deregulation power systems have been force to change their structures, from vertically integrated to open market systems. Each generation company (Genco) is required to compete with rivals through bidding in a pool market and making a bilateral contract with a distribution company (Disco) or consumers to maximize its own profits. A unit commitment becomes responsible for each Genco and difficult for Genco that have one generation plant or small generation capacity. The objective of a Genco is to maximize its profits with makes a decision submit bidding price function to the Independent System Operator (ISO). In order to achieve this goal, it is necessary and important for a small Genco to build optimal bidding strategies considering a bilateral contract and a unit commitment with constraints in time periods for possibilities to get a discontinuous dispatch that could reduce total profits. Approach: The proposed methodology employs an optimization method like Lagrange Relaxation to solve the optimal bidding problem. The solution procedure is applied in the study case and change the market condition to show the effect of bilateral contract to marginal clearing price (MCP), generation output and total profit