Allocation Mechanisms in Rationed Markets

Economic theory has come to play an important role in power system operations through the design of whole-sale markets that are central to their operation. Furthermore, transactive energy places economic theory as a cornerstone in its operational concept as it seeks to integrate the technical needs of the power system with the preferences of its participants. Traditionally the mechanism employed is the continuous double-auction, but depending on the circumstances in which the power system finds itself, this mechanism may or may not be the most appropriate; that is, a one-size-fits-all market institution cannot be recommended without regard for the features of the underlying trading environment. To better understand which types of mechanisms are most appropriate under what circumstances, this paper explains the economic rationale that guides the choice of a market institution and uses a theoretical demonstration in the context of a rationed power system scenario in which demand exceeds generation (due to any number of events such as outages, microgrid operation, etc.) and electrical energy must be rationed.