Do centrally committed electricity markets provide useful price signals?

  • Sioshansi R
  • Tignor A
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Centrally committed markets rely on an independent system operator

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

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

prone to surplus differences between near-optimal solutions and that

buses that are most prone to binding transmission constraints experience

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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