Uniform Marginal Price Research Articles

Optimal day-ahead offering strategy for large producers based on market price response learning

In day-ahead electricity markets based on uniform marginal pricing, small variations in the offering and bidding curves may substantially modify the resulting market outcomes. In this work, we deal with the problem of finding the optimal offering curve for a risk-averse profit-maximizing generating company (GENCO) in a data-driven context. In particular, a large GENCO’s market share may imply that its offering strategy can alter the marginal price formation, which can be used to increase profit. We tackle this problem from a novel perspective. First, we propose an optimization-based methodology to summarize each GENCO’s step-wise supply curves into a subset of representative price-energy blocks. Then, the relationship between the resulting market price and the energy block offering prices is modeled through a probabilistic forecasting tool: a Distributional Neural Network, which also allows us to generate stochastic scenarios for the sensibility of the market towards the GENCO strategy via a set of linear constraints. Finally, this predictive model is embedded in the stochastic optimization model employing a constraint learning approach. Results show how allowing the GENCO to deviate from its true marginal costs renders significant changes in its profits and the marginal price of the market. Additionally, these results have also been tested in an out-of-sample validation setting, showing how this optimal offering strategy can effective in a real-world market context.

Hybrid pricing based operation of coupled electric power and district heating networks

Coordinated operation of Coupled Electric Power and District Heating Networks (CEPDHNs) brings advantages as e.g., the district heating networks can provide flexibility to the electric power network, and the entire system operation can be further decarbonized through heat pumps and electric boilers using electricity from renewable energy sources. Still, today CEPDHNs are often not operated in a coordinated way causing a lack of efficiency. This paper shows, how efficient resource allocation is achieved by determining the power exchange between both networks over an aggregated market. We introduce a welfare-optimizing, market-based operation for a CEPDHN that satisfies operational constraints and considers network losses. The objective is to integrate uniform pricing market-clearing and operational constraints into one approach, in order to obtain high incentive compatibility for the market participants while preventing high uplift costs from redispatch. For this, we use a hybrid market model mainly based on uniform marginal pricing and additionally utilize pay-as-bid pricing for a fraction of the allocated bids and offers. We perform a case study with a real CEPDHN to validate the functionality of the developed approach. The results show that our solution leads to efficient resource allocation while maintaining safe network operation and preventing uplift costs due to redispatch. • Market based operation of coupled electric power and district heating networks (CEPDHNs). • Hybrid market model based on uniform marginal and pay-as-bid pricing for high incentive compatibility. • The holistic system-driven approach avoids redispatch and considers network losses.

Impacts ofBlock‐RateEnergy Pricing on Groundwater Demand in Irrigated Agriculture

In many regions of the world, energy costs associated with extraction represent the only explicit price for groundwater use. Therefore, energy pricing policies can significantly influence the use of scarce groundwater resources. This article leverages unique well‐level data on groundwater use, electricity prices, and pumping efficiency from the Republican River Basin of Colorado to estimate producer responses to changes in marginal energy prices. Empirical parameter estimates are used to simulate a change in energy pricing policy from existing decreasing block rate structures to a revenue‐neutral uniform marginal price. The simulation results reveal that, on average, uniform energy pricing leads to an 11% decrease in groundwater use than would occur under a decreasing block rate pricing regime. However, a transition to uniform energy pricing diminishes short‐run producer welfare. More broadly, the results illustrate how energy pricing has important implications for groundwater management and informs a more comprehensive understanding of how priced inputs influence the use of unpriced natural resources.

Determination of Price Zones during Transition from Uniform to Zonal Electricity Market: A Case Study for Turkey

In the electricity market, different pricing models can be applied to increase market competitiveness. Different electricity systems use different market structures. Uniform marginal pricing, zonal marginal pricing, and nodal marginal pricing methods are commonly used market structures. For markets wishing to move from a uniform pricing structure to a more competitive zonal pricing structure, the determination of price zones is critical for achieving a competitive market that generates accurate price signals. Three different pricing zone detection algorithms are analyzed in this paper including the k-means clustering and queen/rook spatially constraint clustering. Finally, the results of a case study for the Turkish electricity system are shared to compare each method.

Review of Methods to Calculate Congestion Cost Allocation in Deregulated Electricity Market

With maturing deregulated environment for electricity market, cost of transmission congestion becomes a major issue for power system operation. Uniform Marginal Price and Locational Marginal Price (LMP) are the two practical pricing schemes on energy pricing and congestion cost allocation, which are based on different mechanisms. In this paper, these two pricing schemes are introduced in detail respectively. Also, the modified IEEE-14-bus system is used as a test system to calculate the allocated congestion cost by using these two pricing schemes.

Factoring Flexible Demand Non-Convexities in Electricity Markets

Uniform marginal pricing cannot generally support competitive equilibrium solutions in markets with non-convexities, yielding surplus sub-optimality effects. Previous work has identified non-convexities associated with the generation side of electricity markets and proposed different approaches to address surplus sub-optimality. This paper extends this concept to incorporate the demand side. Non-convexities of flexible demand (FD) are identified, including options to forgo demand activities as well as discrete and minimum power levels, and resulting surplus sub-optimality effects are demonstrated through simple examples and a larger case study. Generalized uplift and convex hull pricing approaches addressing these effects are extended to account for FD non-convexities. Concerning the former, generalized uplift functions for FD participants are proposed, and a new rule is introduced for equitable distribution of the total surplus loss compensation among market participants. Regarding the latter, it is demonstrated that convex hull prices are flattened at periods when FD is scheduled to eliminate surplus sub-optimality associated with the FD ability to redistribute energy requirements across time.

Direct approach in computing robust Nash strategies for generating companies in electricity markets

Supply function equilibrium (SFE) is often used to describe the behavior of generating companies in electricity markets. However, comprehensive analytical description of supply function models is rarely available in the literature. In this paper, using some analytical calculations, a novel direct approach is proposed to compute the Nash equilibrium (NE) of the supply function model under uniform marginal pricing mechanism. An explicit mathematical proof for its existence and uniqueness is also presented. The proposed methodology is then generalized to accommodate practical market constraints. In addition, a new concept of robust NE is introduced and calculated based on this approach. Finally, numerical simulations demonstrate the applicability and effectiveness of the proposed solution scheme.

A mathematic model for analyzing the influence of different trade modes to the electricity market

PurposeThe purpose of this paper is to study the influence of different trade modes on the electricity market.Design/methodology/approachA linear model between power units' output and their bidding prices is presented and optimal models to minimize the purchase power cost of power grid companies are presented, applying static games and dynamic games, respectively. Then the relation between power generation amount and units' bidding price is settled by using difference methods. In addition, optimization models are established to optimize profits of units at discriminatory bidding or uniform marginal price applying static game and dynamic game. Finally, the economic benefits and fair competition are compared and analyzed.FindingsIf impartiality is emphasized, the detailed history bidding information should not be opened. Also, it is fairer but difficult to control units' speculative behavior at uniform marginal price.Research limitations/implicationsA supposition has been made that all participants are rational.Practical implicationsThe paper presents useful advice for improving the trade mode of the electricity market.Originality/valuePower units' bidding models and strategies are presented at discriminatory bidding price or at uniform marginal price applying non‐cooperation static game and dynamic game, respectively.

Uniform Marginal Pricing for the Remuneration of Distribution Networks

A new method for distribution access via uniform pricing for the remuneration of distribution networks is presented. The proposed approach merges in a unified framework the investments, the optimal network operation requirements, the effect of the price elasticity of demand, and the application of hourly pricing for demand side management purposes. Hourly uniform marginal prices-understood as tariffs of use of the network-are obtained from maximum social welfare condition sending efficient signals to the utility and consumers, related to the optimal operation of the grid and use of the energy at peak and valley hours. This method is used in the context of a Performance Based Ratemaking regulation to get model companies from operational optimized real networks. Capital fees are integrated in the marginal tariff of use, by means of the New Replacement Value concept, broadly used in yardstick competition. The model is stated as a mixed-integer linear optimization problem suitable to be solved through well-known linear programming tools. The methodology has been successfully tested in a 42-bus test distribution network.

Nodal, Uniform, or Zonal Pricing: Distribution of Economic Surplus

Competitive markets for electricity determine either a uniform marginal price (UMP), a set of nodal marginal prices (NMPs), or a smaller set of zonal marginal prices (ZMPs). In theory, the NMP system is best, as it correctly accounts for transmission constraints (and losses in some versions), but critics allege that the large number of prices is confusing. Since the UMP or ZMP solution must be adjusted to account for transmission constraints and losses, it is reasonable to consider a market design in which actual dispatch corresponds to an NMP model that accounts for losses, and if a UMP or ZMP model is used at all, it is only to compute prices for settlements and compensation for constrained-on or -off generation or load. We prove that, if used in this way, the UMP or ZMP models a) do not affect the total economic surplus, b) redistribute the surplus among generators and loads at the different nodes, and c) give perverse incentives for generation expansion. We illustrate on a realistic system.

Block Rate Pricing of Water in Indonesia: An Analysis of Welfare Effects

Block rate pricing of piped water in Indonesian cities has a progressive structure: the marginal price paid increases with the volume of demand. This paper estimates household water demand in Salatiga city using the Burtless and Hausman model, and finds that its distribution is not unimodal—that data cluster around kinks. The main estimation results are a price elasticity of approximately–1.2 and an income elasticity of 0.05. These elasticities are mutually dependent. The estimated model is used to investigate the social welfare consequences of a shift to uniform pricing. The principal beneficiaries would be large households, which are not necessarily wealthy. While replacing the complex rate structure by a uniform marginal price would have positive effects on average welfare, the equity consequences would be small. To improve equity, water companies could reduce installation fees, giving low-income households access to water connections, or reinvest profits in network expansion to unserviced areas.