IDEAS home Printed from https://ideas.repec.org/a/sae/enejou/v40y2019i6p249-282.html
   My bibliography  Save this article

Another Step Towards Equilibrium Offers in Unit Commitment Auctions with Nonconvex Costs: Multi-Firm Oligopolies

Author

Listed:
  • Joseph E. Duggan Jr.
  • Ramteen Sioshansi

Abstract

There are two uniform-price-auction formats—centrally and self-committed— that are used commonly in wholesale electricity markets. Both formats are operated by an independent third-party market operator, which solicits supply offers from generators and determines how much energy they produce to serve customer demand. In centrally committed markets, generators submit complex offers that convey all of their non-convex operating costs and constraints. Conversely, generators submit simple offers in self-committed markets that specify only the price at which they are willing to supply energy. Thus, generators must internalize their non-convex costs and other operating constraints in submitting offers in a self-committed market. Centrally committed markets include also a provision that each generator is made whole on the basis of its submitted offers. No such guarantees exist in self-committed markets. This paper builds on the work of Sioshansi and Nicholson (2011) and studies the energy-cost ranking and incentive properties of the two market designs in a multifirm oligopoly setting. We derive Nash equilibria under both market designs. We find that equilibrium offer behavior across the two market designs is qualitatively similar to the duopoly model when demand is high. However, when demand is low, cost equivalence between the two market designs breaks down. This is because inframarginal generators are able to earn positive profits in certain states of low demand in self-committed markets, whereas all generators are constrained to earn zero profits in low-demand states in the centrally-committed market design.

Suggested Citation

  • Joseph E. Duggan Jr. & Ramteen Sioshansi, 2019. "Another Step Towards Equilibrium Offers in Unit Commitment Auctions with Nonconvex Costs: Multi-Firm Oligopolies," The Energy Journal, , vol. 40(6), pages 249-282, November.
    • Handle: RePEc:sae:enejou:v:40:y:2019:i:6:p:249-282
    DOI: 10.5547/01956574.40.6.jdug
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.5547/01956574.40.6.jdug
    Download Restriction: no
    File URL: https://libkey.io/10.5547/01956574.40.6.jdug?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Michael Grubb and David Newbery, 2018. "UK Electricity Market Reform and the Energy Transition: Emerging Lessons," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    2. Rassenti, Stephen J & Smith, Vernon L & Wilson, Bart J, 2003. "Discriminatory Price Auctions in Electricity Markets: Low Volatility at the Expense of High Price Levels," Journal of Regulatory Economics, Springer, vol. 23(2), pages 109-123, March.
    3. Ramteen Sioshansi & Emma Nicholson, 2011. "Towards equilibrium offers in unit commitment auctions with nonconvex costs," Journal of Regulatory Economics, Springer, vol. 40(1), pages 41-61, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chaiken, Benjamin & Duggan, Joseph E., 2024. "A note on the uniqueness of Nash–Cournot equilibria in an oligopolistic energy market with renewable generation and demand uncertainty," Energy Economics, Elsevier, vol. 138(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Balint, T. & Lamperti, F. & Mandel, A. & Napoletano, M. & Roventini, A. & Sapio, A., 2017. "Complexity and the Economics of Climate Change: A Survey and a Look Forward," Ecological Economics, Elsevier, vol. 138(C), pages 252-265.
    2. Simshauser, Paul, 2024. "On static vs. dynamic line ratings in renewable energy zones," Energy Economics, Elsevier, vol. 129(C).
    3. Viktorija Bobinaite & Artjoms Obushevs & Irina Oleinikova & Andrei Morch, 2018. "Economically Efficient Design of Market for System Services under the Web-of-Cells Architecture," Energies, MDPI, vol. 11(4), pages 1-29, March.
    4. Camelo, Sergio & Papavasiliou, Anthony & de Castro, Luciano & Riascos, Álvaro & Oren, Shmuel, 2018. "A structural model to evaluate the transition from self-commitment to centralized unit commitment," Energy Economics, Elsevier, vol. 75(C), pages 560-572.
    5. Pär Holmberg & Robert A. Ritz, 2021. "Optimal Capacity Mechanisms for Competitive Electricity Markets," The Energy Journal, , vol. 42(1_suppl), pages 1-34, June.
    6. Christopher M. Anderson & Daniel S. Holland, 2006. "Auctions for Initial Sale of Annual Catch Entitlement," Land Economics, University of Wisconsin Press, vol. 82(3), pages 333-352.
    7. Gohdes, Nicholas & Simshauser, Paul & Wilson, Clevo, 2022. "Renewable entry costs, project finance and the role of revenue quality in Australia's National Electricity Market," Energy Economics, Elsevier, vol. 114(C).
    8. Farrell, Niall, 2021. "The increasing cost of ignoring Coase: Inefficient electricity tariffs, welfare loss and welfare-reducing technological change," Energy Economics, Elsevier, vol. 97(C).
    9. Simshauser, Paul, 2022. "Rooftop solar PV and the peak load problem in the NEM's Queensland region," Energy Economics, Elsevier, vol. 109(C).
    10. Porter, David & Rassenti, Stephen & Shobe, William & Smith, Vernon & Winn, Abel, 2009. "The design, testing and implementation of Virginia's NOx allowance auction," Journal of Economic Behavior & Organization, Elsevier, vol. 69(2), pages 190-200, February.
    11. Eric L. Prentis, 2014. "Deregulation & Privatization: Texas Electric Power Market Evidence," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 5(2), pages 117-126.
    12. Simshauser, P., 2020. "Merchant utilities and boundaries of the firm: vertical integration in energy-only markets," Cambridge Working Papers in Economics 2039, Faculty of Economics, University of Cambridge.
    13. Richstein, Jörn C. & Lorenz, Casimir & Neuhoff, Karsten, 2020. "An auction story: How simple bids struggle with uncertainty," Energy Economics, Elsevier, vol. 89(C).
    14. Simshauser, P. & Gilmore, J., 2020. "Is the NEM broken? Policy discontinuity and the 2017-2020 investment megacycle," Cambridge Working Papers in Economics 2048, Faculty of Economics, University of Cambridge.
    15. Bunn, Derek W. & Oliveira, Fernando S., 2007. "Agent-based analysis of technological diversification and specialization in electricity markets," European Journal of Operational Research, Elsevier, vol. 181(3), pages 1265-1278, September.
    16. Finn Roar Aune and Rolf Golombek, 2021. "Are Carbon Prices Redundant in the 2030 EU Climate and Energy Policy Package?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 225-264.
    17. repec:spo:wpmain:info:hdl:2441/1nlv566svi86iqtetenms15tc4 is not listed on IDEAS
    18. Simshauser, Paul, 2019. "Missing money, missing policy and Resource Adequacy in Australia's National Electricity Market," Utilities Policy, Elsevier, vol. 60(C), pages 1-1.
    19. T. S. Genc, 2009. "Discriminatory Versus Uniform-Price Electricity Auctions with Supply Function Equilibrium," Journal of Optimization Theory and Applications, Springer, vol. 140(1), pages 9-31, January.
    20. Rimvydas Baltaduonis, 2007. "Simple-Offer vs. Complex-Offer Auctions in Deregulated Electricity Markets," Working papers 2007-14, University of Connecticut, Department of Economics.
    21. repec:awi:wpaper:0460 is not listed on IDEAS
    22. Natalia Fabra & Nils‐Henrik Fehr & David Harbord, 2006. "Designing electricity auctions," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 23-46, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:enejou:v:40:y:2019:i:6:p:249-282. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.