On market clearing of day ahead auctions for European power markets: Consumer payment minimisation versus social welfare maximisation

Ioan Alexandru Puiu and Raphael Andreas Hauser

Energy Economics, 2024, vol. 139, issue C

Abstract: For inflexible demand and considering network constraints, we introduce a Consumer Payment Minimisation (CPM) market clearing mechanism and compare it with the standard Social Welfare Maximisation (SWM) used in European Day Ahead Electricity Markets. CPM presents a challenging optimisation problem, which we addressed by four numerical algorithms with varying computational costs and convergence guarantees, evaluated on synthetic data. We derive strong, partial analytical results and the concept of optimal zonal stack curves to facilitate efficient CPM solutions. Evaluations using 2019–2020 data from the Central Western European Day Ahead Power Market under the assumption of truthful bidding show that SWM models historical prices well, while CPM reduces producers’ market power and decreases zonal prices and total electricity procurement costs compared to SWM.

Keywords: Spot electricity market; Numerical optimisation; Auction mechanism; Network constraints; Analytic results; Real-world applications (search for similar items in EconPapers)
JEL-codes: C61 C72 D44 D47 L94 Q41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:139:y:2024:i:c:s0140988324005887

DOI: 10.1016/j.eneco.2024.107880

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