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Zero Operating Cost Renewables and Shadow Bidding in Wholesale Electricity Markets
... As reported in Ref. [86], bidding zero for renewables in the current LMP-based market environment may not help the investors recover the long-term payback as the renewables are of high capital cost. L. Marshall et al. [87] proved that, under the current market environment, zero-marginal-cost generators gain more advantage when competing with other generators using collusive shadow prices, which illustrates the inefficiency of the existing market mechanisms towards high renewable penetration. Some other works focus on distribution market designs, including the capacity-price game for renewable investors [88] and the average pricing market with abundant renewables [89]. ...
With the accelerating penetration of solar energy in energy systems, market operations concerning the solar associated intermittency are widely discussed. How to correctly model the solar generation in the market and solve the uncertainty-based operation problems call for solutions. Unlike other renewable resources, solar power can be more easily applied to the demand side through behind-the-meter installations in a distributed manner with significant future extensibility. The corresponding operational rules in the markets are largely being revised. Over the past two decades, with the development of deregulated power markets, numerous studies related to uncertainty-based market operations tend to transform the market from a deterministic and centralized framework to a stochastic and decentralized one. As the relevant literature is most recent, this paper reviews their contributions to electricity market operations with solar integration and
underlines the research directions of this topic and ongoing industry practices. A thorough review of the electricity markets worldwide with solar energy is provided. A variety of proposed mathematical solutions to the problem are also discussed.
This paper considers three challenge areas for mechanism design and describes the role approximation plays in resolving them. Challenge 1: optimal mechanisms are finely tuned to precise details of the distribution on agent preferences. Challenge 2: in environments with multi-dimensional agent preferences economic analysis has failed to provide generic characterizations optimal mechanisms. Challenge 3: optimal mecha-nisms are parameterized by unrealistic knowledge of the distribution of agents' private preferences. The theory of approximation is well suited to address these challenges. While the optimal mechanism may require precise distributional assumptions, there may be approximately optimal mechanism that depends only on natural characteris-tics of the distribution. While the multi-dimensional optimal mechanism may resist precise economic characterization, there may be simple description of approximately optimal mechanisms. While the optimal mechanism may be parameterized by the distribution of the agents' private preferences, there may be a single mechanism that approximates the optimal mechanism for any distribution. Finally, these approximately optimal mechanisms, because of their simplicity and tractability, may be more likely to arise in practice, thus making the theory of approximately optimal mechanism more descriptive than that of (precisely) optimal mechanisms. This paper surveys positive resolutions to these challenges with emphasis on basic techniques, relevance to practice, and future research directions for approximation in mechanism design.
This book provides a comprehensive introduction to modern auction theory and its important new applications. It is written by a leading economic theorist whose suggestions guided the creation of the new spectrum auction designs. Aimed at graduate students and professionals in economics, the book gives the most up-to-date treatments of both traditional theories of ‘optimal auctions’ and newer theories of multi-unit auctions and package auctions, and shows by example how these theories are used. The analysis explores the limitations of prominent older designs, such as the Vickrey auction design, and evaluates the practical responses to those limitations. It explores the tension between the traditional theory of auctions with a fixed set of bidders, in which the seller seeks to squeeze as much revenue as possible from the fixed set, and the theory of auctions with endogenous entry, in which bidder profits must be respected to encourage participation.
This paper argues that the market rules governing the operation of a re-structured electricity market in combination with its market structure can have a substantial impact on behavior of marketclearing prices. Using evidence on the design of electricity markets in England and Wales, Norway, the state of Victoria in Australia and New Zealand, this paper illustrates that market structure and market rules are important drivers of the behavior of prices in a competitive electricity market. The paper first summarizes the important features of the market structure and market rules in each country. One conclusion to emerge from this comparison is that there are many differences in how these markets in each country are organized. I then provide an assessment of the relationship between market rules and market structure and the behavior of prices in each market. The paper closes with a discussion of the available evidence that the behavior of prices in each country is the result of the exercis...
Computer science and economics have engaged in a lively interaction over the past fifteen years, resulting in the new field of algorithmic game theory. Many problems that are central to modern computer science, ranging from resource allocation in large networks to online advertising, involve interactions between multiple self-interested parties. Economics and game theory offer a host of useful models and definitions to reason about such problems. The flow of ideas also travels in the other direction, and concepts from computer science are increasingly important in economics. This book grew out of the author’s Stanford University course on algorithmic game theory, and aims to give students and other newcomers a quick and accessible introduction to many of the most important concepts in the field. The book also includes case studies on online advertising, wireless spectrum auctions, kidney exchange, and network management.
Control reserves are power generation or consumption entities that ensure balance of supply and demand of electricity in real-time. In many countries, they are operated through a market mechanism in which entities provide bids. The system operator determines the accepted bids based on an optimization algorithm. We develop the Vickery-Clarke-Groves (VCG) mechanism for these electricity markets. We show that all advantages of the VCG mechanism including incentive compatibility of the equilibria and efficiency of the outcome can be guaranteed in these markets. Furthermore, we derive conditions to ensure collusion and shill bidding are not profitable. Our results are verified with numerical examples.
This study evaluates the incremental costs of higher levels of renewable energy (RE) supply using an optimisation tool to find least cost electricity generation portfolios. The Australian National Electricity Market (NEM) in 2030 is used as a case study for exploring various generation portfolios from low to high shares of RE, low to high greenhouse gas emissions caps, and low to high carbon prices. Incremental costs are found to increase approximately linearly as the RE share grows from zero to 80%, and then demonstrate a small degree of non-linear escalation, related to the inclusion of more costly renewable technologies such as solar thermal electricity. Similarly, costs increase approximately linearly as a greenhouse gas emissions cap is lowered from 150 megatonnes (Mt) to 30 Mt, and then demonstrate a small degree of non-linear escalation for caps below 30 Mt. However, in both cases this escalation is moderate, and does not appear to provide a strong argument for long-term policies that aim for RE shares lower than 100%, or electricity sector emissions caps higher than zero as one option for rapid decarbonisation.
Locational marginal pricing (LMP) system is complex but critical to ensure a power market's smooth and health operation. This paper addresses both the current and the future LMP system in the ERCOT market. It starts with introducing the operating process of the current zonal LMP, then examines several major challenges and issues associated with the current LMP operations, and in the end gives an introduction to the proposed nodal LMP system which is anticipated to be put in place by January 1st 2009
Over the last several years, there has been a nation-wide intensification of policies directed at increasing the level of renewable sources of electricity. These environmental policy changes have occurred against a backdrop of shifting economic regulation in power markets that has fundamentally redefined the mechanisms through which investors in power plants earn revenues. Rather than base payments upon costs, revenues in many regions are now based upon fluctuating energy prices and, in some cases, supplemental payments for installed capacity. This paper studies the interaction between these two major forces that are currently dominating the economic landscape of the electricity industry. Using data from the western U.S., we examine how the large-scale expansion of intermittent resources of generation could influence long-run equilibrium prices and investment decisions under differing wholesale power market designs. We find that as the level of wind penetration increases, the equilibrium investment mix of other resources shifts towards less baseload and more peaking capacity. As wind penetration increases, an “average” wind producer earns increasingly more revenue under markets with capacity payments than those that base compensation on energy revenues.
Markets for Power provides an unusually complete analysis of the economic, technical, and institutional aspects of the electric utility industry. The authors evaluate four currently popular options for deregulating this unique segment of the economy, and in a balanced program for reform, they advise against total deregulation and recommend a cautious approach to even partial deregulation.
1. Introduction. Consider the problem faced by someone who has an object to sell, and who does not know how much his prospective buyers might be willing to pay for the object. This seller would like to find some auction procedure which can give him the highest expected revenue or utility among all the different kinds of auctions known (progressive auctions, Dutch auctions, sealed bid auctions, discriminatory auctions, etc.). In this paper, we will construct such optimal auctions for a wide class of sellers' auction design problems. Although these auctions generally sell the object at a discount below what the highest bidder is willing to pay, and sometimes they do not even sell to highest bidder, we shall prove that no other auction mechanism can give higher expected utility to the seller. To analyze the potential performance of different kinds of auctions, we follow
National electricity rules
- J.-H W A G Au
The nordic electricity exchange and the nordic model for a liberalized electricity market
- N. Nord Pool Spot