On the Pricing Dilemma of Centralized Electricity Markets

Abstract:
For over a decade now, system operators (SO) coordinate regional electricity markets for which generators present their unit costs of generation, as well as operating conditions under which they are willing to operate. These operating conditions often involve non-convexities arising from requirements such as minimum up and down times and other operating requirements. Because of these non-convexities, it is has become customary to use Mixed-Integer Programming (MIP) for generation planning via unit commitment models. However, unlike Convex Programming approaches, MIP models do not provide appropriate shadow prices. Over the past decade, there have been several attempts to tie economic theory with alternative ways to derive shadow prices for unit-commitment models. In this talk we will present several alternatives, some of which are motivated by two-part prices. The talk is intended to provoke several new questions in an unconventional, yet important issue for pricing in non-convex markets. This is joint work with his Ph.D. student Praneeth Aketi