On Clearing Coupled Day-Ahead Electricity Markets

15 Pages Posted: 18 Aug 2010 Last revised: 3 Nov 2010

Alexander Martin

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Johannes C. Müller

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg

Sebastian Pokutta

Georgia Institute of Technology

Date Written: August 17, 2010

Abstract

The European power grid can be divided into several market areas where the price of electricity is determined in a day-ahead auction. Market participants can provide continuous hourly bid curves and combinatorial bids with associated quantities given the prices. The goal of the auction is to determine cross-border flow and market clearing prices. Whereas this can be done rather efficiently in the absence of combinatorial structure, in the case of electricity markets the determination of a market clearing price is hard. We present and solve a non-discriminatory market model to determine clearing prices that maximize the economic surplus of all participants. The determined prices are consistent throughout the market areas. At first it would seem that one price for all market areas is appropriate. This however is not true. We will explain these price differentials as consequences of the underlying optimization problem.

Keywords: clearing prices, electricity markets, energy market coupling, congestion management, day-ahead auctions, mixed-integer programming

JEL Classification: C60, C61, G14, D44, D52, Q41, Q43, Q49

Suggested Citation

Martin, Alexander and Müller, Johannes C. and Pokutta, Sebastian, On Clearing Coupled Day-Ahead Electricity Markets (August 17, 2010). 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1660528 or http://dx.doi.org/10.2139/ssrn.1660528

Alexander Martin

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Schloßplatz 4
Erlangen, Bavaria 91054
Germany

Johannes C. Müller

University of Erlangen-Nuremberg-Friedrich Alexander Universität Erlangen Nürnberg ( email )

Schloßplatz 4
Erlangen, Bavaria 91054
Germany

Sebastian Pokutta (Contact Author)

Georgia Institute of Technology ( email )

Atlanta, GA 30332
United States

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