Investigating minimum income condition orders on European power exchanges: Controversial properties and enhancement proposals

Abstract

One of the most difficult challenges of deregulated electricity markets is the proper management and operation planning of economically non-convex generators. The origin of economic non-convexity is twofold. Firstly, generators generally have non-zero minimum output power (MOP) levels, below which they cannot sustain operation. Secondly, they might have substantial fixed costs. The direct consideration of these characteristics leads to very hard non-convex mathematical problems with the increased probability of computational difficulties and long solution time for the market clearing process.Complex orders with explicit Minimum Income Conditions (MICs) have been invented to provide a method to represent non-convex generators on European day-ahead power exchanges. The rationale is that a MIC can be attached to a set of simple supply bids, which means that these bids can be accepted only if their acquired incomes surpass bidder-specified minimal values.The present research is conducted to investigate several controversial issues concerning the current use of MICs from the viewpoint of market participants. Firstly, no direct mechanism is provided to handle the MOP of generators. Secondly, simple bid price constraints and simultaneously attached income criteria can have contradictory implications that lead to sub-optimal clearing results. Thirdly, the current use of MICs contributes to cheating opportunities, because it entails distortions in the social welfare calculation. The paper defines new ways of MIC attachment to circumvent the revealed hindrances. For this purpose, several modification techniques are considered such as the discretization of bid quantities, the relaxation of elementary bid pricing rules and the revision of social welfare calculation. Two novel order types are proposed, supported by comparative numerical simulations using realistic market data.