Moving from linear to conic markets for electricity

Anubhav Ratha, Pierre Pinson, Hélène Le Cadre, Ana Virag and Jalal Kazempour

European Journal of Operational Research, 2023, vol. 309, issue 2, 762-783

Abstract: We propose a new forward electricity market framework that admits heterogeneous market participants with second-order cone strategy sets, who accurately express the nonlinearities in their costs and constraints through conic bids, and a network operator facing conic operational constraints. In contrast to the prevalent linear-programming-based electricity markets, we highlight how the inclusion of second-order cone constraints improves uncertainty-, asset-, and network-awareness of the market, which is key to the successful transition towards an electricity system based on weather-dependent renewable energy sources. We analyze our general market-clearing proposal using conic duality theory to derive efficient spatially-differentiated prices for the multiple commodities, comprised of energy and flexibility services. Under the assumption of perfect competition, we prove the equivalence of the centrally-solved market-clearing optimization problem to a competitive spatial price equilibrium involving a set of rational and self-interested participants and a price setter. Finally, under common assumptions, we prove that moving towards conic markets does not incur the loss of desirable economic properties of markets, namely market efficiency, cost recovery, and revenue adequacy. Our numerical studies focus on the specific use case of uncertainty-aware market design and demonstrate that the proposed conic market brings advantages over existing alternatives within the linear programming market framework.

Keywords: OR in energy; Spatial equilibrium; Mechanism design; Electricity markets; Conic economics (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:309:y:2023:i:2:p:762-783

DOI: 10.1016/j.ejor.2022.12.025

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