Minimizing opportunity costs of paradoxically rejected block orders in European day-ahead electricity markets

We provide with the first formulation of an optimization problem that aims at minimizing total opportunity costs of so-called paradoxically rejected block orders (PRB) in non-convex European day-ahead electricity markets with uniform prices such as the CWE market. This is done in a way avoiding complementarity constraints to model market rules, and without binary variables to linearize them, instead relying on strong duality results. This key property is of much importance from an algorithmic viewpoint. A toy example shows that a welfare maximizing solution (WMS) may not be a solution minimizing opportunity costs (OCMS). However, computations on real data kindly provided by main European power exchanges show that most of the time, the WMS is at least very close to the OCMS. The present work is the first providing with mathematical programming tools to assess the real tradeoff between welfare optimality and opportunity costs of PRB in such non-convex markets.