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On the Stability, Economic Efficiency and Incentive Compatibility of Electricity Market Dynamics

Pengcheng You, Yan Jiang, Enoch Yeung, Dennice F. Gayme and Enrique Mallada

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Abstract: This paper focuses on the operation of an electricity market that accounts for participants that bid at a sub-minute timescale. To that end, we model the market-clearing process as a dynamical system, called market dynamics, which is temporally coupled with the grid frequency dynamics and is thus required to guarantee system-wide stability while meeting the system operational constraints. We characterize participants as price-takers who rationally update their bids to maximize their utility in response to real-time schedules of prices and dispatch. For two common bidding mechanisms, based on quantity and price, we identify a notion of alignment between participants' behavior and planners' goals that leads to a saddle-based design of the market that guarantees convergence to a point meeting all operational constraints. We further explore cases where this alignment property does not hold and observe that misaligned participants' bidding can destabilize the closed-loop system. We thus design a regularized version of the market dynamics that recovers all the desirable stability and steady-state performance guarantees. Numerical tests validate our results on the IEEE 39-bus system.

Date: 2021-12
New Economics Papers: this item is included in nep-des, nep-ene, nep-reg and nep-upt
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Handle: RePEc:arx:papers:2112.05811