Moving from Linear to Conic Markets for Electricity

Anubhav Ratha*, Pierre Pinson, Hélène Le Cadre, Ana Virag, Jalal Kazempour

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We propose a new forward electricity market framework that admits heterogeneous market participants with second-order cone strategy sets, who accurately express the nonlinearities in their costs and constraints through conic bids, and a network operator facing conic operational constraints. In contrast to the prevalent linear-programming-based electricity markets, we highlight how the inclusion of second-order cone constraints improves uncertainty-, asset-, and network awareness of the market, which is key to the successful transition towards an electricity system based on weather-dependent renewable energy sources. We analyze our general market-clearing proposal using conic duality theory to derive efficient spatially-differentiated prices for the multiple commodities, comprised of energy and flexibility services. Under the assumption of perfect competition, we prove the equivalence of the centrally-solved market-clearing optimization problem to a competitive spatial price equilibrium involving a set of rational and self-interested participants and a price setter. Finally, under common assumptions, we prove that moving towards conic markets does not incur the loss of desirable economic properties of markets, namely market efficiency, cost recovery, and revenue adequacy. Our numerical studies focus on the specific use case of uncertainty-aware market design and demonstrate that the proposed conic market brings advantages over existing alternatives within the linear programming market framework.
Original languageEnglish
JournalEuropean Journal of Operational Research
Volume309
Issue number2
Pages (from-to)762-783
Number of pages22
ISSN0377-2217
DOIs
Publication statusPublished - 2023

Keywords

  • OR in energy
  • Spatial equilibrium
  • Mechanism design
  • Electricity markets
  • Conic economics

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