An Efficient and Incentive Compatible Mechanism for Wholesale Electricity Markets
- Creators
- Xu, Yunjian
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Low, Steven H.
Abstract
Being widely used in many deregulated wholesale electricity markets, the locational marginal pricing (LMP) mechanism is known to achieve social optimality in a competitive market. When profit-maximizing generators act strategically to manipulate prices; however, LMP may lead to high loss of economic efficiency. In this paper, we apply the Vickrey-Clarke–Groves (VCG) mechanism to wholesale electricity markets. We show that the VCG mechanism minimizes the total cost at a truth-telling dominant strategy equilibrium. We establish an important comparative result that the VCG mechanism always results in higher per-unit electricity prices than the LMP mechanism under any given set of reported supply curves. Numerical results show that the difference between the per-unit prices resulting from the two mechanisms is negligibly small (about 4%) in the IEEE 14-bus and 30-bus test systems. Finally, we apply the VCG mechanism to a day-ahead setting with start-up cost (of conventional generators) and intermittent renewable generation. We show that the VCG mechanism induces the truth-telling behavior of conventional generators in dominant strategies and yields each conventional generator a non-negative expected profit.
Additional Information
© 2015 IEEE. Manuscript received January 13, 2015; revised April 24, 2015 and July 14, 2015; accepted September 23, 2015. Date of publication October 13, 2015; date of current version December 21, 2016. This work was supported in part by the Massachusetts Institute of Technology-Singapore University of Technology and Design International Design Center under Grant IDG21400103, in part by the National Science Foundation (NSF) NetSE under Grant CNS-0911041, in part by the NSF as part of the NSF/Department of Homeland Security/Department of Transportation/National Aeronautics and Space Administration/National Institutes of Health Cyber-Physical Systems Program under Grant 1545096, in part by the Advanced Research Projects Agency-Energy under Grant DE-AR0000226, in part by the Southern California Edison, in part by the Skotech grant, and in part by the Resnick Institute. Paper no. TSG-00046-2015.Additional details
- Eprint ID
- 73427
- DOI
- 10.1109/TSG.2015.2483523
- Resolver ID
- CaltechAUTHORS:20170111-125209937
- Massachusetts Institute of Technology-Singapore University of Technology and Design International Design Center
- IDG21400103
- NSF NetSE
- CNS-0911041
- NSF
- CNS-1545096
- ARPA-E
- DE-AR0000226
- Southern California Edison
- Skotech
- Resnick Sustainability Institute
- Created
-
2017-01-21Created from EPrint's datestamp field
- Updated
-
2021-11-11Created from EPrint's last_modified field
- Caltech groups
- Resnick Sustainability Institute