Abstract
To promote the reformation of the electricity market in China, a market mechanism that can support collaboration between the contract market and the upcoming spot market was designed in this paper. The focus of this paper was to develop a mechanism to institutionally stabilize the market by way of disciplining market power abuse through limiting arbitrage opportunities generated from multi-markets. To quantitatively describe the arbitrage opportunity, the arbitrage opportunity function (AOF) was defined. Based on inferences of the no-arbitrage principle and the AOF, a cost-based decomposition algorithm for contracts that could improve contract coverage was proposed. The incentive compatible settlement rule for the uncovered generation on the spot market was designed to properly manipulate the arbitrage opportunity. The decomposition algorithm and the settlement rule constituted the designed market mechanism. To verify the applicability and effectiveness of the proposed mechanism, the principles of incentive compatibility, individual rationality, and payment cost minimization were employed to test the designed market mechanism based on the concept of dominant policy equilibrium. This test was conducted on a fictitious case based on the IEEE-14 system. The analysis and results may provide valuable insights on market design in China based on the functional correlation between the contract market and the spot market.
Highlights
Designing an electricity market mechanism that supports collaboration between the current contract market and the upcoming spot market is in line with the current Chinese economic, environmental, and political agendas [1,2,3]
First, we qualitatively analyzed the interactions between trading results in the day-ahead market and the contract coverage, where we indicated the effectiveness of high contract coverage on limiting market power abuse in the day-ahead market
To support the smooth integration of the spot market in China, a spot market mechanism was designed in this paper
Summary
Designing an electricity market mechanism that supports collaboration between the current contract market and the upcoming spot market is in line with the current Chinese economic, environmental, and political agendas [1,2,3]. Considering the configuration of the network and the considerable market shares of state-owned power generation companies (GENCOs), the stabilization of market order, especially at the preliminary stages of the spot market construction, is quite important. The key to market stabilization is disciplining market power abuse. Arbitrage opportunities will appear when prices between the contract market and the spot market are distinct [15], which is the underlying incentive for the abuse of market power. Arbitrage opportunities should be institutionally addressed in the process of designing mechanisms to support cooperation between the contract market and spot market
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