Do centrally committed electricity markets provide useful price signals?

  • Sioshansi R
  • Tignor A
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Abstract

Centrally committed markets rely on an independent system operator
to

determine the commitment and dispatch of generators. This is done
by solving a

unit commitment model, which is an NP-hard mixed integer program that
is rarely

(if ever) solved to complete optimality. We demonstrate, using a case
study based

on the ISO New England system, that near-optimal solutions that are
very close

to one another in terms of overall system cost can yield very different
generator

surpluses and prices. We further demonstrate that peaking generators
are more

prone to surplus differences between near-optimal solutions and that
transmission

buses that are most prone to binding transmission constraints experience
the

greatest price fluctuations. Based on these findings, we discuss the
potential benefits

of a decentralized market design in providing more robust price signals.

Author-supplied keywords

  • Market design
  • Pricing
  • Unit commitment

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