Revenue-adequate pricing mechanisms in non-convex electricity markets: A comparative study

Abstract

Electricity market designs that allow multi-part bids and consider the technical characteristics of the generation units are characterized by non-convexities. Such market designs, when operated under marginal pricing, may result in losses for the market participants, and for this reason they are usually supplemented by some sort of side payments or uplifts, as they are often called. In this paper, we study pricing mechanisms that generate revenues to the market participants that are adequate to cover any losses arising from the non-convexities without the need for external uplift payments. We provide the formulations for a stylized Unit Commitment and Economic Dispatch problem, and we introduce a new pricing mechanism, which we call "Minimum Zero-sum Uplift". We compare the different schemes on a common numerical example and study their behavior. The findings allow us to obtain useful insights on the performance and the mechanics of each mechanism.