Modified convex hull pricing for fixed load power markets

Abstract

We consider a fixed load power market with non-convexities originating from the start-up and no-load costs of generators. The convex hull (minimum-uplift) pricing method results in power prices that minimize the total uplift payment to generators introduced to compensate their potential profits lost by accepting the centralized dispatch solution. In this method, an opportunity to supply any other output volume allowed by a private constraint set of a producer is treated as foregone, and all these output volumes enter the lost profit calculation. We propose identifying the output volumes that are attainable at the power market (i.e., the volumes that are both economically and technologically feasible) and constructing the corresponding modified private feasible set for each producer, which is a subset of the producer’s original private feasible set. These sets are further utilized in the lost profit calculations for the producers. The new pricing method results in a generally different set of market prices and lower (or equal) total uplift payment compared to the convex hull pricing algorithm.