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A Stochastic Electricity Market Clearing Formulation with Consistent Pricing Properties

Victor M Zavala(victor.zavala***at***wisc.edu)
Kibaek Kim(kkim***at***anl.gov)
Mihai Anitescu(anitescu***at***mcs.anl.gov)
John Birge(john.birge***at***chicagobooth.edu)

Abstract: We argue that deterministic market clearing formulations introduce arbitrary distortions between day-ahead and expected real-time prices that bias economic incentives and block diversi cation. We extend and analyze the stochastic clearing formulation proposed by Pritchard et al. (2010) in which the social surplus function induces penalties between day-ahead and real-time quantities. We prove that the formulation yields price distortions that are bounded by the bid prices, and we show that adding a similar penalty term to trans- mission ows and phase angles ensures boundedness throughout the network. We prove that when the price distortions are zero, day-ahead quantities converge to the quantile of real-time counterparts. The undesired e ects of price distortions suggest that stochastic settings provide signi cant bene ts over deterministic ones that go beyond social surplus improvements. We propose additional metrics to evaluate these bene ts.


Category 1: Convex and Nonsmooth Optimization

Category 2: Stochastic Programming

Category 3: Applications -- OR and Management Sciences


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Entry Submitted: 10/28/2015
Entry Accepted: 10/28/2015
Entry Last Modified: 10/28/2015

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