Operations Research 2018 Abstract Submission

Auction mechanisms for electricity markets

Invited abstract in session WB-6: Business Track, stream Business Track.

Wednesday, 11:00-12:40
Room: 1g. Budapest

Authors (first author is the speaker)

1. Martin Starnberger
N-SIDE

Abstract

Power is traded in Europe within and across different regions and countries on multiple markets with different time horizons. Examples for such markets are the day-ahead market, the intraday market, and reserve markets. In the day-ahead market and the intraday market sellers and buyers can agree on the delivery of power for the next and the current day. The market participants are typically production and distribution companies and large consumers. In reserve markets, reserve power is offered to system operators in order to cope with imbalances on the power grid. Reserve markets differ by activation time of the reserve power, which includes automatic activation within seconds or manual activation. With the advent of electricity generation by wind and solar power the demand for reserve power is growing and the role of these auctions becomes increasingly important.

Market mechanisms consist of an allocation problem and a pricing problem and receive the bids of the buyers and sellers as input. The bids contain information about the bidding price and the volume that is requested or offered. Given the bids, the market mechanisms determine which bids are accepted to which amount and the value of the market prices. A common goal for the mechanisms is to optimize the welfare of the market participants but also other objectives are used in practice. The prices are typically the clearing prices for a region and period or the bidding prices.

Market participants in electricity markets face complex physical constraints that limit the set of feasible allocations. For instance, a power plant often cannot be started up and shut down from one period to the next. Thus, ramping constraints and block orders that model the dependencies between multiple periods have to be taken into consideration. These and other physical constraints create the need for complex bidding languages that support combinatorial bids, which leads to mixed integer problems.

The representation of the power grid is another important factor in the design of auction mechanisms for electricity markets. A sound mathematical model of the grid is needed to ensure that flows induced by trades satisfy all the physical limitations of the grid. However, since Kirchhoff’s circuit laws introduce non-convex constraints they often cannot be considered directly in the auction mechanisms. Instead, the power flow is usually expressed in form of linear models. The selection of a suitable model is crucial as it influences the outcomes of the auction mechanisms and prevents physically infeasible allocations.

N-SIDE is developing auction mechanisms for transnational and local energy markets. Among the mechanisms developed by N-SIDE is the coupling algorithm for the European day-ahead market, which is used to determine the spot prices and volumes for 23 European countries. We will provide a brief introduction into some of these mechanisms and discuss the role of Operations Research in their design.

Keywords

Status: accepted


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