Uniform Pricing vs Pay as Bid in 100%-Renewables Electricity Markets: A Game-theoretical Analysis

Dongwei Zhao, Audun Botterud and Marija Ilic

Papers from arXiv.org

Abstract: This paper evaluates market equilibrium under different pricing mechanisms in a two-settlement 100%-renewables electricity market. Given general probability distributions of renewable energy, we establish game-theoretical models to analyze equilibrium bidding strategies, market prices, and profits under uniform pricing (UP) and pay-as-bid pricing (PAB). We prove that UP can incentivize suppliers to withhold bidding quantities and lead to price spikes. PAB can reduce the market price, but it may lead to a mixed-strategy price equilibrium. Then, we present a regulated uniform pricing scheme (RUP) based on suppliers' marginal costs that include penalty costs for real-time deviations. We show that RUP can achieve lower yet positive prices and profits compared with PAB in a duopoly market, which approximates the least-cost system outcome. Simulations with synthetic and real data find that under PAB and RUP, higher uncertainty of renewables and real-time shortage penalty prices can increase the market price by encouraging lower bidding quantities, thereby increasing suppliers' profits.

Date: 2023-05
New Economics Papers: this item is included in nep-com, nep-ene, nep-gth, nep-mfd and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2305.12309 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2305.12309

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().