Optimal combinatorial electricity markets

Abstract

The deregulation of the electricity industry in many countries has created a number of marketplaces in which producers and consumers can operate in order to more effectively manage and meet their energy needs. To this end, this paper develops a new model for electricity retail where end-use customers choose their supplier from competing electricity retailers. The model is based on simultaneous reverse combinatorial auctions, designed as a second-price sealed-bid multi-item auction with supply function bidding. This model prevents strategic bidding and allows the auctioneer to maximise its pay-off. Furthermore, we develop optimal single-item and multi-item algorithms for winner determination in such auctions that are significantly less complex than those currently available in the literature.