Cost and fuel consumption in the Spanish electricity market: inefficiencies and risks with the present rules vs. an alternative bidding and clearing design

Abstract

Besides allowing competition and security of supply, from the operational point of view an ideal electricity market should lead to a least cost generation program. That is, respecting all security and environmental criteria, there should be no lower cost way to cover the hourly demand. The Spanish bidding design for the spot market, responsible for the final generation program, is found inadequate to reach such goal, and to imply higher fuel consumption, cost and emissions, plus also certain risks for generation companies. Some inadequacies are identified, and an alternative bidding design is proposed, estimated to better achieve the mentioned objective. Using real and estimated data from the Spanish electric system, alternative generation programs were calculated for four representative weeks, and compared to the ones actually scheduled by the market, showing that savings of about 5.2% in cost of thermal generation and 3.9% in emissions are possible in the Spanish electric system.