A Stochastic Electricity Market Clearing Formulation with Consistent Pricing Properties

Victor M. Zavala (), Kibaek Kim (), Mihai Anitescu () and John Birge
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Victor M. Zavala: Department of Chemical and Biological Engineering, University of Wisconsin–Madison, Madison, Wisconsin 53706
Kibaek Kim: Mathematics and Computer Science Division, Argonne National Laboratory, Lemont, Illinois 60439
Mihai Anitescu: Mathematics and Computer Science Division, Argonne National Laboratory, Lemont, Illinois 60439

Operations Research, 2017, vol. 65, issue 3, 557-576

Abstract: We argue that deterministic market clearing formulations introduce arbitrary distortions between day-ahead and expected real-time prices that bias economic incentives. We extend and analyze a previously proposed stochastic clearing formulation in which the social surplus function induces penalties between day-ahead and real-time quantities. We prove that the formulation yields price bounded price distortions, and we show that adding a similar penalty term to transmission flows and phase angles ensures boundedness throughout the network. We prove that when the price distortions are zero, day-ahead quantities equal a quantile of their real-time counterparts. The undesired effects of price distortions suggest that stochastic settings provide significant benefits over deterministic ones that go beyond social surplus improvements. We propose additional metrics to evaluate these benefits.

Keywords: stochastic; electricity; network; market clearing; pricing (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (16)

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https://doi.org/10.1287/opre.2016.1576 (application/pdf)

Related works:
Working Paper: A Stochastic Electricity Market Clearing Formulation with Consistent Pricing Properties (2015)
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