Alternative pricing approach for the lumpy electricity markets

Abstract

Uniform marginal price schemes in a pool-based electricity market cannot clear the market. In this paper, we propose an alternative pricing approach for the day-ahead electricity market in a power pool auction assuming inelastic demand. The approach employs a Semi Lagrangean Relaxation (SLR) technique and a second price auction. We show that the method proposed accommodates the non-convexities that characterize the electricity market and provides a shadow value that represents the price to be announced for the second price auction. The SLR closes the integrality gap, while the second price auction guarantees that only those generators that can fulfill the demand without losses are engaged. The second price auction provides the final price for the day-ahead electricity. The demand is fulfilled at minimum cost and all generators committed cover their own costs. We argue that these prices are market clearing and provide market equilibrium. IndexTerms--Integer programming, mathematical programming, operations research, power generation dispatch, power generation economics, power generation scheduling I. INTRO DUCTIONT HE deregulation of the electricity market has taken place in many countries around the world. Each country has decided its own pace and has developed different market designs.Before the deregulation of the electricity markets, some researchers pointed out the difficulties to set a completely deregulated spot electricity market, specially due to the special technical characteristics that the electricity market has [1]. Indeed, many deregulated electricity structures have kept a centralized unit commitment and dispatch problem solved by an ISO (Independent System Operator or Market Operator), who sets the quantities that the generators should produce and then sets the electricity price. In a typical electricity market, the suppliers and consumers will submit their information regarding their bids and offers; the ISO will optimize an objective function which will provide the optimal quantities that should be bought and sold by the corresponding market participants; in addition the ISO has to announce the market price that will lead to market clearance.In those markets where there is a centralized unit commitment, where the ISO makes binding commitment decisions, there are already some issues related with equity, incentives and efficiency [2]. Some of the problems are due toThe authors are with the the difficulties of finding a market clearing price, and some others of fmding the optimal dispatch and units that shall be required to produce. The latter are due to the technique used to solve the UCDP (Unit Commitment Dispatch Problem).The UCDP is a well known problem where the ISO needs to find the least cost generators whose total energy production meets total demand within the security limits, such as losses, transmission constraints, and rampage rates, and also within the generators' capacity constraints and minimum start up and minimum or/and maximum down time constraints. Up to now the main technique use...