Electricity market clearing with improved scheduling of stochastic production

TY - JOUR

T1 - Electricity market clearing with improved scheduling of stochastic production

AU - Morales, Juan M.

AU - Zugno, Marco

AU - Pineda Morente, Salvador

AU - Pinson, Pierre

PY - 2014/6/16

Y1 - 2014/6/16

N2 - In this paper, we consider an electricity market that consists of a day-ahead and a balancing settlement, and includes a number of stochastic producers. We first introduce two reference procedures for scheduling and pricing energy in the day-ahead market: on the one hand, a conventional network-constrained auction purely based on the least-cost merit order, where stochastic generation enters with its expected production and a low marginal cost; on the other, a counterfactual auction that also accounts for the projected balancing costs using stochastic programming. Although the stochastic clearing procedure attains higher market efficiency in expectation than the conventional day-ahead auction, it suffers from fundamental drawbacks with a view to its practical implementation. In particular, it requires flexible producers (those that make up for the lack or surplus of stochastic generation) to accept losses in some scenarios. Using a bilevel programming framework, we then show that the conventional auction, if combined with a suitable day-ahead dispatch of stochastic producers (generally different from their expected production), can substantially increase market efficiency and emulate the advantageous features of the stochastic optimization ideal, while avoiding its major pitfalls. A two-node power system serves as both an illustrative example and a proof of concept. Finally, a more realistic case study highlights the main advantages of a smart day-ahead dispatch of stochastic producers.

AB - In this paper, we consider an electricity market that consists of a day-ahead and a balancing settlement, and includes a number of stochastic producers. We first introduce two reference procedures for scheduling and pricing energy in the day-ahead market: on the one hand, a conventional network-constrained auction purely based on the least-cost merit order, where stochastic generation enters with its expected production and a low marginal cost; on the other, a counterfactual auction that also accounts for the projected balancing costs using stochastic programming. Although the stochastic clearing procedure attains higher market efficiency in expectation than the conventional day-ahead auction, it suffers from fundamental drawbacks with a view to its practical implementation. In particular, it requires flexible producers (those that make up for the lack or surplus of stochastic generation) to accept losses in some scenarios. Using a bilevel programming framework, we then show that the conventional auction, if combined with a suitable day-ahead dispatch of stochastic producers (generally different from their expected production), can substantially increase market efficiency and emulate the advantageous features of the stochastic optimization ideal, while avoiding its major pitfalls. A two-node power system serves as both an illustrative example and a proof of concept. Finally, a more realistic case study highlights the main advantages of a smart day-ahead dispatch of stochastic producers.

KW - Bilevel programming

KW - Electricity market

KW - Electricity pricing

KW - OR in energy

KW - Stochastic programming

KW - Wind power

U2 - 10.1016/j.ejor.2013.11.013

DO - 10.1016/j.ejor.2013.11.013

M3 - Journal article

AN - SCOPUS:84894427853

SN - 0377-2217

VL - 235

SP - 765

EP - 774

JO - European Journal of Operational Research

JF - European Journal of Operational Research

IS - 3

ER -