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Pricing wind: a revenue adequate, cost recovering uniform auction for electricity markets with intermittent generation

Golbon Zakeri(g.zakeri***at***auckland.ac.nz)
Geoff Pritchard(g.pritchard***at***auckland.ac.nz)
Endre Bjorndal(Endre.Bjorndal***at***nhh.no)
Mette Bjorndal(mette.bjorndal***at***nhh.no)

Abstract: With greater penetration of renewable generation, the uncertainty faced in electricity markets has increased substantially. Conventionally, generators are assigned a pre-dispatch quantity in advance of real time, based on estimates of uncertain quantities. Expensive real time adjustments then need to be made to ensure demand is met, as uncertainty takes on a realization. We propose a new stochastic-programming market clearing mechanism to optimize pre-dispatch quantities, given the uncertainties' probability distribution and the costs of real-time deviation. This model differs from similar mechanisms previously proposed in that pre-dispatch quantities are not subject to any network or other physical constraints; nor do they play a role in financial settlement. We establish revenue adequacy in each scenario (as opposed to ``in expectation''), welfare enhancement and expected cost recovery (including deviation costs), for this market clearing mechanism. We also establish that this market clearing mechanism is social welfare optimizing.

Keywords: pricing, electricity markets, stochastic programming

Category 1: Applications -- OR and Management Sciences

Category 2: Stochastic Programming

Citation: Electric Power Optimization Centre report, 06/16. University of Auckland

Download: [PDF]

Entry Submitted: 06/08/2016
Entry Accepted: 06/08/2016
Entry Last Modified: 06/08/2016

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