Enabling participation of demand-side flexibility in electricity markets is key to improving power system resilience and increasing the penetration of renewable generation. In this work we are motivated by the curtailment of near-zero-marginal-cost renewable resources during periods of oversupply, a particularly important cause of inefficient generation dispatch. Focusing on shiftable load in a multi-interval economic dispatch setting, we show that incompatible incentives arise for loads in the standard market formulation. While the system's overall efficiency increases from dispatching flexible demand, the overall welfare of loads can decrease as a result of higher spot prices. We propose a market design to address this incentive issue. Specifically, by imposing a small number of additional constraints on the economic dispatch problem, we obtain a mechanism that guarantees individual rationality for all market participants while simultaneously obtaining a more efficient dispatch. Our formulation leads to a natural definition of a uniform, time-varying flexibility price that is paid to loads to incentivize flexible bidding. We provide theoretical guarantees and empirically validate our model with simulations on real-world generation data from California Independent System Operator (CAISO).
more »
« less
Equilibrium analysis of electricity markets with day-ahead market power mitigation and real-time intercept bidding
Electricity markets are cleared by a two-stage, sequential process consisting of a forward (day-ahead) market and a spot (real-time) market. While their design goal is to achieve efficiency, the lack of sufficient competition introduces many opportunities for price manipulation. To discourage this phenomenon, some Independent System Operators (ISOs) mandate generators to submit (approximately) truthful bids in the day-ahead market. However, without fully accounting for all participants' incentives (generators and loads), the application of such a mandate may lead to unintended consequences. In this paper, we model and study the interactions of generators and inelastic loads in a two-stage settlement where generators are required to bid truthfully in the day-ahead market. We show that such mandate, when accounting for generator and load incentives, leads to a {generalized} Stackelberg-Nash game where load decisions (leaders) are performed in day-ahead market and generator decisions (followers) are relegated to the real-time market. Furthermore, the use of conventional supply function bidding for generators in real-time, does not guarantee the existence of a Nash equilibrium. This motivates the use of intercept bidding, as an alternative bidding mechanism for generators in the real-time market. An equilibrium analysis in this setting, leads to a closed-form solution that unveils several insights. Particularly, it shows that, unlike standard two-stage markets, loads are the winners of the competition in the sense that their aggregate payments are less than that of the competitive equilibrium. Moreover, heterogeneity in generators cost has the unintended effect of mitigating loads market power. Numerical studies validate and further illustrate these insights.
more »
« less
- NSF-PAR ID:
- 10350308
- Date Published:
- Journal Name:
- Proceedings of the Thirteenth ACM International Conference on Future Energy Systems (e-Energy)
- Page Range / eLocation ID:
- 47 to 62
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
More Like this
-
-
We study economic incentives provided by space-time dynamics of day-ahead and real-time electricity markets. Specifically, we seek to analyze to what extent such dynamics promote decentralization of technologies for generation, consumption, and storage (which is essential to obtain a more flexible power grid). Incentives for decentralization are also of relevance given recent interest in the deployment of small-scale modular technologies (e.g., modular ammonia and biogas production systems). Our analysis is based on an asset placement problem that seeks to find optimal locations for generators and loads in the network that minimize profit risk. We show that an unconstrained version of this problem can be cast as an eigenvalue problem. Under this representation, optimal network allocations are eigenvectors of the space-time price covariance matrix while the eigenvalues are the associated profit variances. We also construct a more sophisticated placement formulation that captures different risk metrics and constraints on types of technologies to systematically analyze trade-offs in expected profit and risk. Our analysis reveals that space-time market dynamics provide significant incentives for decentralization and strategic asset placement but that full mitigation of risk is only possible through simultaneous investment in generation and loads (which can be achieved using batteries or microgrids).more » « less
-
The internet advertising market is a multibillion dollar industry in which advertisers buy thousands of ad placements every day by repeatedly participating in auctions. An important and ubiquitous feature of these auctions is the presence of campaign budgets, which specify the maximum amount the advertisers are willing to pay over a specified time period. In this paper, we present a new model to study the equilibrium bidding strategies in standard auctions, a large class of auctions that includes first and second price auctions, for advertisers who satisfy budget constraints on average. Our model dispenses with the common yet unrealistic assumption that advertisers’ values are independent and instead assumes a contextual model in which advertisers determine their values using a common feature vector. We show the existence of a natural value pacing–based Bayes–Nash equilibrium under very mild assumptions. Furthermore, we prove a revenue equivalence showing that all standard auctions yield the same revenue even in the presence of budget constraints. Leveraging this equivalence, we prove price of anarchy bounds for liquid welfare and structural properties of pacing-based equilibria that hold for all standard auctions. In recent years, the internet advertising market has adopted first price auctions as the preferred paradigm for selling advertising slots. Our work, thus, takes an important step toward understanding the implications of the shift to first price auctions in internet advertising markets by studying how the choice of the selling mechanism impacts revenues, welfare, and advertisers’ bidding strategies. This paper was accepted by Itai Ashlagi, revenue management and market analytics. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2023.4719 .more » « less
-
As the renewable penetration in the grid increases, the grid-takes-all-renewable paradigm will no longer be sustainable. We consider a day-ahead (DA) electricity market composed of a renewable generator, a natural gas power plant (NGPP) and a coal power plant (CPP). Each player provides the Independent System Operator (ISO) with their commitment and their asking price. The ISO schedules the generators using a least-cost strategy. Because of the intrinsic uncertainty of the renewable generation, the renewable player might be unable to meet its DA commitment. In the event of a shortfall, the renewable generator incurs a penalty so that the non-renewable sources are not forced to consume the cost of renewable intermittence. It has been recognized that such a penalty can lead to conservative bidding by the renewable generator, which may lead to lower than desired penetration of renewable energy in the grid. We formulate and analyze a contract between the renewable producer and the NGPP so that the NGPP reserves some amount of natural gas to hedge the renewable producer against shortfalls. Expressions for the optimal commitments of the players and for the optimal reserve contract are derived. When a reserve contract is established, we observe an increase both in the average profit of the players involved and in the renewable participation in the market. Thus, we show that a Pareto-optimal contract between market players can improve renewable penetration.more » « less
-
We propose a new distribution locational marginal price (DLMP) model which is based on a linearized variant of the global energy balance formulation along with trust-region based solution methodology. Compared to existing DLMP works in the literature, the proposed DLMP model has shown to depict the following features: i) It decomposes into most general components, i.e., energy, loss, congestion and voltage; ii) it presents market equilibrium conditions; and ii) it is capable of achieving an efficient flexibility resource allocation in local day-ahead distribution grid markets. The developed model is tested first on a benchmark IEEE 33-bus distribution grid and then on much larger grids with the inclusion of dispatch from flexible loads (FLs) and distributed generators (DGs).more » « less
- Free Publicly Accessible Full Text
-
Accepted Manuscript1.0
- Conference Paper:
- https://doi.org/10.1145/3538637.3538839
