Understanding Convergence Bids During Blackouts: Analytical Results and Real-World Implications

Abstract

Convergence bidding is a financial instrument that is widely adopted in recent years in two-settlement electricity markets to reduce the price gap between the day-ahead market (DAM) and the real-time market (RTM). This paper, for the first time, investigates the operation and impact of convergence bids (CBs) during <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">blackouts</i> . First, the amount of load shedding in the RTM is modeled as a <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">function</i> of the amount of the cleared CBs in the DAM. The sign of the slope of this function is proposed as a metric to determine if a CB <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">exacerbates</i> or <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">heals</i> the power outages. Next, a series of mathematical theorems are developed to obtain and characterize this new metric under different network conditions. It is proved that, when there is <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">no</i> congestion in the DAM, the metric is always greater than or equal to zero. When there <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">is</i> congestion in the DAM, the metric can be positive or negative. Using numerical case studies, we show that, not only when there is no congestion, but also most often when there is congestion, the introduced metric is positive. Therefore, supply CBs almost always hurt the system during blackouts while demand CBs almost always help the system. Furthermore, the impact of load shedding on the profit of CBs is also analyzed. It is shown that, load shedding usually creates advantage for supply CBs and disadvantage for demand CBs in terms of their profit. The implications of these results are discussed. We also analyze the real-world market data from the California Independent System Operator (ISO) during the blackouts in August 2020. It is shown that, the decision by the California ISO to suspend CBs during this event matches the mathematical and numerical results that are obtained and discussed in this paper.