Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
Pricing wind: A revenue adequate, cost recovering uniform price for electricity markets with intermittent generation
(), Geoff Pritchard
(), Mette Bjørndal
() and Endre Bjørndal
Abstract: With greater penetration of renewable generation, the
uncertainty faced in electricity markets has increased substantially.
Conventionally, generators are assigned a pre-dispatch quantity in advance
of real time, based on estimates of uncertain quantities. Expensive real
time adjustments then need to be made to ensure demand is met, as
uncertainty takes on a realization. We propose a new stochastic-programming
market clearing mechanism to optimize pre-dispatch quantities, given the
uncertainties’ probability distribution and the costs of real-time
deviation. This model differs from similar mechanisms previously proposed
in that pre-dispatch quantities are not subject to any network or other
physical constraints; nor do they play a role in financial settlement. We
establish revenue adequacy in each scenario (as opposed to “in
expectation”), welfare enhancement and expected cost recovery (including
deviation costs), for this market clearing mechanism. We also establish
that this market clearing mechanism is social welfare optimizing.
Keywords: Stochastic programming; locational pricing; wind power; regulation; (follow links to similar papers)
JEL-Codes: C60; L10; L94; (follow links to similar papers)
15 pages, September 6, 2016
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