Strategic bidding via the interplay of minimum income condition orders in day-ahead power exchanges

Dávid Csercsik

doi:10.1016/j.eneco.2021.105126

Abstract

In this paper we study the so-called minimum income condition order, which is used in some day-ahead electricity power exchanges to represent the production-related costs of generating units. This order belongs to the family of complex orders, which imply non-convexities in the market clearing problem. We demonstrate via simple numerical examples that if more of such bids are present in the market, their interplay may open the possibility of strategic bidding. More precisely, we show that by the manipulation of bid parameters, a strategic player may increase its own profit and potentially induce the deactivation of an other minimum income condition order, which would be accepted under truthful bidding. Furthermore, we show that if we modify the objective function used in the market clearing according to principles suggested in the literature, it is possible to prevent the possibility of such strategic bidding, but the modification raises other issues.

Highlights

If one investigates trading and pricing mechanisms in various electricity markets around the globe, it may be recognized that despite local market integration advancements and the convergence implied by them, the evolution of individual markets resulted in a diverse set of mechanisms and approaches (Oksanen et al, 2009; Sioshansi, 2011)
We suppose that S5-S6 and S7-S8 are part of complex Minimum Income Condition (MIC) orders (c1 and c2 respectively), while the rest of the bids are standard bids, cleared purely according to the resulting market clearing price (MCP)
Case 3 In this subsection, we show that if we assume the modified objective function described by eq (24), which omits the terms corresponding to the hourly bids of MIC orders, and considers the cost of these bids based on fixed term (FT) and variable term (VT), another potential problems may arise during the clearing process

Summary

Introduction

If one investigates trading and pricing mechanisms in various electricity markets around the globe, it may be recognized that despite local market integration advancements and the convergence implied by them, the evolution of individual markets resulted in a diverse set of mechanisms and approaches (Oksanen et al, 2009; Sioshansi, 2011). The paper (Imran and Kockar, 2014) summarizes the various aspects of differences between North American and European type market designs. One of these aspects is the format of generator hourly bids in the day-ahead market. In this paper we focus on generator bids in European-type portfolio-bidding markets, or day-ahead power exchanges (DAPXs). These markets are cleared in order to obtain zonal market clearing prices (in contrast to US type market designs, where locational marginal pricing is applied). In the general framework these markets are coupled, and the clearing mechanisms take transmission constraints into account (Chatzigiannis et al, 2016a, 2016b; Biskas et al, 2013a, 2013b)

Objectives

Methods

Conclusion