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Quasi-Stochastic Electricity Markets

Jacob Mays(jacobmays***at***cornell.edu)

Abstract: Operators of wholesale electricity markets clear sequential, deterministic auctions that attempt to represent an underlying dynamic, stochastic reality, with the additional complicating factor of non-convex production costs. In order to help resolve price formation issues that arise in this context, market designers have proposed operating reserve demand curves that inject an element of stochasticity into deterministic market clearing formulations, altering the procurement of reserves and therefore the pricing of both reserves and energy. The construction of these curves relies on contentious administrative parameters that lack strong theoretical justification. This paper proposes instead to construct curves based on reserve valuations implicit in non-market reliability processes performed by system operators. The proposed strategy promotes greater consistency between commitment decisions and eventual prices, reducing the need for out-of-market uplift payments or enhanced pricing schemes to address non-convexity.

Keywords: Electricity market design, operating reserves, stochastic competitive equilibrium

Category 1: Applications -- OR and Management Sciences

Citation: Working Paper, School of Civil and Environmental Engineering, Cornell University

Download: [PDF]

Entry Submitted: 10/08/2019
Entry Accepted: 10/08/2019
Entry Last Modified: 10/08/2019

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