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An efficient, open-bid procurement auction for small-scale electricity markets

Sebastian Lange, Peter Sokolowski and Xinghuo Yu

Applied Energy, 2022, vol. 314, issue C, No S0306261922003002

Abstract: Despite early calls to investigate the application of Vickrey auctions in electricity markets, academic literature still provides little insight into the matter. Similarly, despite general auction-theoretic literature discussing various advantages of employing revealed rather than sealed bidding procedures, publications on electricity market auctions rarely even mention differences between these opposing features. This paper marries these neglected features into a new auction model for electricity markets. We propose a novel open-bid, descending-clock auction capable of handling inter-bidder dependencies such as thermal line limits. A novel set of termination criteria ensures that our proposed auction facing markets with power balance and generator capacity constraints and thermal line limits, preserves truthful bidding as a dominant strategy, which, if employed by all bidders, allocates supply efficiently constituting an ex-post perfect equilibrium. Furthermore, we discuss known disadvantages of Vickrey–Clarke–Groves type auctions in the context of our proposed auction applied in electricity markets.

Keywords: Electricity market; Power market; Auction design; Efficiency; Market power; Open-bid (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.apenergy.2022.118867

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