A Stochastic Market Design With Revenue Adequacy and Cost Recovery by Scenario: Benefits and Costs

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Two desirable properties of electricity market mechanisms include: i) revenue adequacy for the market, and ii) cost recovery for all generators. Previously proposed stochastic market-clearing mechanisms satisfy both properties in expectation only, or satisfy one property by scenario and another in expectation. Consequently, market parties may perceive significant risks from market participation, and therefore be discouraged from making offers or perhaps even investing. We develop a stochastic two-stage market-clearing model including day-ahead and real-time settlements with an energy-only pricing scheme that ensures both properties by scenario. However, this approach is cost-inefficient in general and may sacrifice other desirable market attributes. Undesirable consequences include: one group of participants will have to pay more to ensure that all other participants have their costs covered, and thus their prices will not be equilibrium supporting; and day-ahead and real-time prices are not arbitraged in expectation, although this can be fixed by allowing virtual bidders to arbitrage but at the potential cost of increased market inefficiency. Considering these pros and cons, we propose our model as an appropriate tool for market analysis, and not for clearing actual markets. Numerical results from case studies illustrate the benefits and costs of the proposed stochastic market design.
Original languageEnglish
JournalI E E E Transactions on Power Systems
Volume33
Issue number4
Pages (from-to)3531-3545
Number of pages14
ISSN0885-8950
DOIs
Publication statusPublished - 2018
CitationsWeb of Science® Times Cited: No match on DOI

    Research areas

  • Two-stage stochastic market clearing, Revenue adequacy, Cost recovery, Equilibrium
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