Abstract
The objective of this study is to investigate the impact of different auction pricing rules on the market performance in the context of the competitive electricity market. In pursuing this objective, a simplified model of auction based electricity market has been designed and three distinctive pricing rules are analyzed: uniform pricing, pay-as-bid pricing and the Vickrey-Clarke-Grove pricing. Using agent-based modeling approach, generators have been modelled as agents submitting price-quantity bids to the market. The Simulated-Annealing Q-learning algorithm has been adopted as the learning mechanism for the agents so they can maximize their profit using strategic bidding. The computer simulation is used to test the effect of the different pricing rules on the total dispatch cost, bid price and generators’ profit. In addition, the generating capacity of one of the competing agents is altered to a significantly larger size to evaluate the effect of the relative market share on total dispatch cost and agents’ welfare. This study concludes that the pay-as-bid auction can complicate the way bidders learn and react about each other’s strategy. While uniform pricing results in high and volatile total dispatch cost in the market and pay-as-bid pricing induces truthful bidding leading to low dispatch cost, Vickrey pricing seems to provide a good balance between controlling the total cost and its stability. The theoretical and practical contributions of this study are also discussed in the paper.
Highlights
The electricity industries reform around the world is aimed at improving systems efficiency, attracting investments in the market, as well as ensuring a competitive electricity price
While uniform pricing results in high and volatile total dispatch cost in the market and pay-as-bid pricing induces truthful bidding leading to low dispatch cost, Vickrey pricing seems to provide a good balance between controlling the total cost and its stability
The objective of this study has been to investigate the impact of different pricing rules on the market performance and the players’ welfare
Summary
The electricity industries reform around the world is aimed at improving systems efficiency, attracting investments in the market, as well as ensuring a competitive electricity price. The advent of deregulation, privatization and market competition has created a new paradigm in the electricity industry through the management and modeling of an auction based electricity market. While competition exists in both the seller side and the buyer side of the market, competition in the supply side mainly has become the driving factor for generation companies to employ more efficient plants and generation technologies. Competition in electricity trading highlights the importance of an effective market mechanism to ensure fair and contestable market exist for generating companies and new players. The selection of the pricing rule has been a major issue in the electricity market establishment process
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
