Descending-clock reverse auction for electricity markets considering power flow constraints

Abstract

Since their inception, a variety of auction designs have been utilized to increase the performance of electricity markets both within the academic literature and employed in real-world electricity markets. A feature most electricity market designs found in the literature have in common is the use of static sealed-bid auctions. Yet, consulting the auction theoretical literature shows that dynamic auctions utilizing revealed-bids could hold valuable benefits over static sealed-bid auctions, such as better price discovery, increased transparency and auction outcomes closer to equilibrium states. In this work, a descending-clock auction designed for power markets is proposed which employs revealed-bids. The model considers line capacity limits, generator capacity constraints as well as the power balance constraint and allows bidders to adapt future bids to these constraints. It is shown, that the proposed model encourages sincere bidding, which constitutes a weakly dominant strategy and - if followed by all bidders - constitutes an ex-post perfect equilibrium.