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There is a growing need for electricity-system flexibility to maintain real-time balance between energy supply and demand. In this paper, we explore optimal and incentive-compatible scheduling of generators for this purpose. Specifically, we examine a setting wherein each generator has a different operating cost if it is committed in advance (e.g., day- or hour-ahead) as opposed to being reserved as flexible real-time supply. We model an optimal division of generators between advanced commitment and real-time flexible reserves to minimize the expected cost of serving an uncertain demand. Next, we propose an incentive-compatible remuneration scheme with two key properties. First, the remuneration scheme incentivizes generators to reveal their true costs. Second, the scheme aligns generators’ incentives with the market operator’s optimal division of generators between advanced commitment and real-time reserve. We use a simple example to illustrate the market operator’s decision and the remuneration scheme. JEL Classification: C61, D47, D82, L94, Q4
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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.
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- 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
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- Free Publicly Accessible Full Text
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Accepted Manuscript1.0
- Conference Paper:
- https://doi.org/10.1145/3538637.3538839
