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Revisiting Minimum Profit Conditions in Uniform Price Day-Ahead Electricity Auctions

Mehdi Madani () and Mathieu van Vyve ()
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Mehdi Madani: UCL, Louvain School of Management
Mathieu van Vyve: Université catholique de Louvain, CORE, Belgium

No 2016043, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We examine the problem of clearing day-ahead electricity market auctions where each bidder, whether a producer or consumer, can specify a minimum profit or maximum payment condition constraining the acceptance of a set of bid curves spanning multiple time periods in locations connected through a transmission network with linear constraints. Such types of conditions are for example considered in the Spanish and Portuguese day-ahead markets. This helps describing the recovery of start-up costs of a power plant, or analogously for a large consumer, utility reduced by a constant term. A new market model is proposed with a corresponding MILP formulation for uniform locational price day-ahead auctions, handling bids with a minimum profit or maximum payment condition in a uniform and computationally-efficient way. An exact decomposition procedure with sparse strengthened Benders cuts derived from the MILP formulation is also proposed. The MILP formulation and the decomposition procedure are similar to computationally-efficient approaches previously proposed to handle so-called block bids according to European market rules, though the clearing conditions could appear different at first sight. Both solving approaches are also valid to deal with both kinds of bids simultaneously, as block bids with a minimum acceptance ratio, generalizing fully indivisible block bids, are but a special case of the MP bids introduced here. We argue in favour of the MP bids by comparing them to previous models for minimum profit conditions proposed in the academic literature, and to the model for minimum income conditions used by the Spanish power exchange OMIE.

Date: 2016-12-19
New Economics Papers: this item is included in nep-ene
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