Abstract
Part 1 of this two-part paper describes the impact that uncertainty has on the design and analysis of price formation policies in the non-convex auctions conducted by U.S. wholesale electricity market operators. Using first a toy model and then a large-scale test system, Part 2 demonstrates the difference in prices under the idealized benchmark of ex ante convex hull pricing defined in Part 1 versus existing methods, in particular documenting the potential for suppression of volatility and therefore under-compensation of flexibility by existing methods. The examples highlight that inefficient spot price formation can induce inefficient forward commitments of generators, necessitating out-of-market intervention to restore a reliable and efficient operating plan.Given the potential side effects of existing policies for investment and operation, we suggest two elements in a reoriented approach to the price formation problem: first ensuring that prices exhibit full-strength volatility, and second ensuring that risk-averse market participants have sufficient ability to manage this volatility.
Original language | American English |
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Pages (from-to) | 490-498 |
Number of pages | 9 |
Journal | IEEE Transactions on Energy Markets, Policy and Regulation |
Volume | 1 |
Issue number | 4 |
DOIs | |
State | Published - 2023 |
NREL Publication Number
- NREL/JA-2C00-85874
Keywords
- electricity market design
- price formation
- risk trading
- virtual bidding