Abstract
The European power grid can be divided into several market areas where the price of electricity is determined in a day-ahead auction. Market participants can provide continuous hourly bid curves and combinatorial bids with associated quantities given the prices. The goal of the auction is to determine cross-border flow and market clearing prices. Whereas this can be done rather efficiently in the absence of combinatorial structure, in the case of electricity markets the determination of a market clearing price is hard. We present and solve a non-discriminatory market model to determine clearing prices that maximize the economic surplus of all participants. The determined prices are consistent throughout the market areas. At first it would seem that one price for all market areas is appropriate. This however is not true. We will explain these price differentials as consequences of the underlying optimization problem.
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