A Bienstock–Zuckerberg-Based Algorithm for Solving a Network-Flow Formulation of the Convex Hull Pricing Problem

Abstract

This paper studies the convex hull pricing problem in electricity markets using a network-flow-based formulation. The network represents the feasible operating region of a generating unit, and the associated flow constraints define a polyhedron with an integrality property. These facts provide modeling flexibility with respect to the inclusion of unit features and allow to obtain convex hull prices from a linear programming problem. The formulation is solved using a primal-dual approach based on the algorithm developed by Bienstock and Zuckerberg. The algorithm, together with the implemented pre-processing and initialization techniques, allows achieving lower solution times than those obtained by state-of-the-art algorithms available in commercial solvers, e.g., barrier and dual simplex. Furthermore, results suggest that the proposed formulation obtains the minimum uplift payments even when time-dependent start-up costs are included, making the approach more robust than the best documented compact formulation. The paper also discusses the effect of sub-optimal prices on uplift payments by relaxing the optimality criterion of the algorithm, observing a significant impact on lost opportunity costs.