Electricity Pricing Under Constraint Violations

Abstract

Constraint relaxation is widely used in electricity market clearing to obtain an acceptable solution when the market model is infeasible facing conflicting operating requirements. However, the penalty factors added in the objective function cause extremely high price spikes. Such a problem is currently handled by ad-hoc manners in power industries. After summarizing the current industrial practice and relative problems, we present a unified pricing model under constraint violations, which considers the prices as decision variables. Theoretical proof shows that the proposed method is capable of representing LMP with price spikes and current industrial practice. Hence, the pricing model has the ability of achieving more desired prices under the same pricing requirements. Furthermore, this paper presents a practical implementation of this unified model. The minimization of uplift payments, which is caused by the split of pricing and scheduling, is used as the objective function. This model can be transformed to a linear formulation without accuracy loss. Case studies show that the proposed pricing method brings distinct advantages compared with current industrial practices.