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Equilibrium prices supported by dual price functions in markets with non-convexities

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  • Bjørndal, Mette
  • Jörnsten, Kurt

Abstract

The issue of finding market clearing prices in markets with non-convexities has had a renewed interest due to the deregulation of the electricity sector. In the day-ahead electricity market, equilibrium prices are calculated based on bids from generators and consumers. In most of the existing markets, several generation technologies are present, some of which have considerable non-convexities, such as capacity limitations and large start-up costs. In this paper we present equilibrium prices composed of a commodity price and an uplift charge. The prices are based on the generation of a separating valid inequality that supports the optimal resource allocation. In the case when the sub-problem generated as the integer variables are held fixed to their optimal values possess the integrality property, the generated prices are also supported by non-linear price functions that are the basis for integer programming duality.

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  • Bjørndal, Mette & Jörnsten, Kurt, 2008. "Equilibrium prices supported by dual price functions in markets with non-convexities," European Journal of Operational Research, Elsevier, vol. 190(3), pages 768-789, November.
    • Handle: RePEc:eee:ejores:v:190:y:2008:i:3:p:768-789
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    9. Hassan Shavandi & Mehrdad Pirnia & J. David Fuller, 2018. "Extended opportunity cost model to find near equilibrium electricity prices under non-convexities," Papers 1809.09734, arXiv.org.
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    11. Kuang, Xiaolong & Lamadrid, Alberto J. & Zuluaga, Luis F., 2019. "Pricing in non-convex markets with quadratic deliverability costs," Energy Economics, Elsevier, vol. 80(C), pages 123-131.
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    13. Hacopian Dolatabadi, Sarineh & Latify, Mohammad Amin & Karshenas, Hamidreza & Sharifi, Alimorad, 2022. "On pricing issues in electricity markets in the presence of externalities," Energy, Elsevier, vol. 246(C).
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    15. Morales, Juan M. & Zugno, Marco & Pineda, Salvador & Pinson, Pierre, 2014. "Electricity market clearing with improved scheduling of stochastic production," European Journal of Operational Research, Elsevier, vol. 235(3), pages 765-774.
    16. Madani, Mehdi & Van Vyve, Mathieu, 2015. "Computationally efficient MIP formulation and algorithms for European day-ahead electricity market auctions," European Journal of Operational Research, Elsevier, vol. 242(2), pages 580-593.
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    18. Wang, Yi & Yang, Zhifang & Yu, Juan & Liu, Sixu, 2023. "Pricing in non-convex electricity markets with flexible trade-off of pricing properties," Energy, Elsevier, vol. 274(C).
    19. Knaut, Andreas & Obermüller, Frank & Weiser, Florian, 2017. "Tender Frequency and Market Concentration in Balancing Power Markets," EWI Working Papers 2017-4, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
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