Day-ahead electricity market design based on market interpretation of optimization theory

Abstract

How to reduce the electricity price risk is a difficult issue in electricity markets. One of its core issues, i. e. asymmetric information, always leads to the resources misallocation in electricity market. To guarantee the efficient and orderly operation of electricity market, a new market mechanism is proposed based on the market interpretation of optimization theory. In this new mechanism, letting the market participants join the iterative process via the Lagrange relaxation algorithm, the original iterative process of mathematics is transformed into the market equilibrium process. In the equilibrium process, the market participants can change their bidding strategies according to the balance between profits income and satisfaction degree of constraints. This new mechanism design can improve the rationality of bidding by incentive compatibility and discover and optimize the feasible region of electricity markets by cooperating with the original optimization process. Meanwhile, it also can remove the insufficient competition caused by information asymmetry and increase the efficiency and order of the original iterative process, till the Pareto optimality of electricity market come true. The simulation on an IEEE 30-node system shows that the new mechanism can solve the problem of information asymmetry of market participants, and get better clearing results than the conventional mechanism in a larger feasible region by utilizing the elasticity of boundary conditions.