Pricing rules Sample Clauses

Pricing rules. ‌ The major problem when clearing electricity markets is that due to non-convexities (start-up, indivisible offers such as the minimum technical output, etc.) it is not possible to obtain an optimal (social-welfare maximizing) dispatch that can be cleared with uniform marginal prices5. Due to this impossibility, there is a trade-off when designing the pricing rules in the wholesale market: • Either obtaining the social-welfare maximizing solution is neither constrained by a financial balance constraint (i.e. sum of all transacted purchases equals sum of all transacted sales) nor by uniform pricing requirements, and consequently additional compensations may be required for some bids (therefore, this pricing approach involves discriminatory remuneration). • Or the social-welfare maximization is constrained by a financial balance constraint and by uniform pricing (so there are no discriminatory compensations). Consequently, the dispatch is more constrained and there may be “paradoxes” in the results (see below). Generally speaking, the first approach represents the US ISO/RTOs market design, while the second approach represents the EU PXs market design one. Next we describe them both in more detail: The US approach In the US ISO/RTOs markets, both the day-ahead (DA) and the real-time (RT) prices6 are computed in a similar way. The clearing algorithm in both cases looks for the maximization of the social welfare. Roughly speaking, prices are calculated ex-post as a result of the social welfare maximizing dispatch. They represent the marginal costs of the system in each node (locational marginal pricing), DA prices are hourly while RT prices have greater granularity (15 – 5 minutes). 5 The literature on this topic is extense, see for instance (Xxxxxxxxx, 2014), (Xxxx et al., 2012), (xxx Xxxx, 2011), (Xxxxxx et al., 2007), (X’Xxxxx et al., 2007) or (Xxxxx and Xxxx, 2003).
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