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Pricing in centrally committed electricity markets

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  • Sioshansi, Ramteen

Abstract

A long-standing issue with centrally committed electricity markets is the design of non-confiscatory and equilibrium-supporting prices. This is because the social planner's problem in such a market is a non-convex unit commitment. O'Neill et al. (2005) propose a pricing scheme that overcomes these issues for any market that can be formulated as a mixed-integer linear program. Moreover, claims appear in the literature implying that such a payment mechanism is currently in use in a number of organized electricity markets. Using an illustrative example, we demonstrate that this is not the case. We further demonstrate that the pricing scheme proposed by O'Neill et al. (2005) has some important implications for long-run capacity investment.

Suggested Citation

  • Sioshansi, Ramteen, 2014. "Pricing in centrally committed electricity markets," Utilities Policy, Elsevier, vol. 31(C), pages 143-145.
    • Handle: RePEc:eee:juipol:v:31:y:2014:i:c:p:143-145
    DOI: 10.1016/j.jup.2014.09.009
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    1. Herbert Scarf, 1994. "The Allocation of Resources in the Presence of Indivisibilities," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 111-128, Fall.
    2. Johnson, Raymond B. & Oren, Shmuel S. & Svoboda, Alva J., 1997. "Equity and efficiency of unit commitment in competitive electricity markets," Utilities Policy, Elsevier, vol. 6(1), pages 9-19, March.
    3. O'Neill, Richard P. & Sotkiewicz, Paul M. & Hobbs, Benjamin F. & Rothkopf, Michael H. & Stewart, William R., 2005. "Efficient market-clearing prices in markets with nonconvexities," European Journal of Operational Research, Elsevier, vol. 164(1), pages 269-285, July.
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    Cited by:

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    2. Hacopian Dolatabadi, Sarineh & Latify, Mohammad Amin & Karshenas, Hamidreza & Sharifi, Alimorad, 2024. "Demand response mechanisms: A new debate on internalizing power generation sector negative technical spillovers," Energy, Elsevier, vol. 301(C).

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