A methodology for the consideration of start-up costs into the marginal cost estimated with production cost models

Abstract

The following paper presents a methodology for the consideration of the start-up costs of thermal power plants into the marginal cost calculate with production cost models. This methodology is motivated by the observations made by some authors regarding the tendency of production cost models to systematically underestimate spot prices during peak hours and to overestimate them during off-peak hours This behaviour has been attributed to the fact that traditional methodologies applied to determine the short-run marginal cost in mixed integral linear programming models, fail to consider the start-up costs into the system marginal cost. The developed methodology was applied to for the modelling of the power systems of three important European electricity markets. The results show improvements in the accuracy of the model when estimating average marginal costs and comparing them with the spot prices of the corresponding electricity markets.