On reducing uplift payment in electricity markets

Abstract

In current U.S. deregulated wholesale electricity markets, an auction mechanism that minimizes the total bid cost is used to select bids and their output levels. Energy market clearing prices (MCPs) are derived from the shadow prices associated with the system demand constraints in an economic dispatch process with fixed unit commitment status. Therefore they do not reflect no-load and start-up costs, resulting in the uplift payments. To reduce such side payments and improve the market transparency, the “convex hull pricing model” is adopted, and “online capacity constraints” are introduced to the energy market, requiring the total online capacities to be greater than or equal to the system demand. With the associated multipliers serving as uniform “no-load clearing prices,” the total uplift payment is proved to be reduced based on optimality conditions for multipliers. Numerical examples support the analytical results and shed insights on different types of uplift payments.