Core-Selecting Mechanisms in Electricity Markets

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• Orcun Karaca (ETH Zürich)
• Thursday 10 January 2019, 17:00-18:00
• Seminar Room 1, Newton Institute.

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MESW01 - Flexible operation and advanced control for energy systems

Previous work on electricity market auctions considers the pay-as-bid and the locational marginal pricing (LMP) mechanisms. In both mechanisms, generators can bid strategically to influence their profits since these mechanisms do not incentivize truthful bidding. As an alternative, under the Vickrey-Clarke-Groves mechanism, truthful bidding is the dominant-strategy Nash equilibrium. Despite having this theoretical virtue, coalitions of participants can influence the auction outcome to obtain higher collective profit. In this talk, we characterize the exact class of coalition-proof mechanisms as the core-selecting mechanisms. In addition to being coalition-proof, we show that these mechanisms generalize the economic rationale of the LMP mechanism. Namely, these mechanisms are the exact class of mechanisms that ensure the existence of a competitive equilibrium in linear/nonlinear prices. This implies that the LMP mechanism is also core-selecting, and hence coalition-proof. In contrast to the LMP mechanism, core-selecting mechanisms exist for a broad class of electricity markets, such as ones involving nonconvex costs and nonconvex constraint sets. In addition, they can approximate truthfulness without the price-taking assumption of the LMP mechanism. Finally, we show that they are also budget-balanced. Our results are verified with case studies based on optimal power flow test systems and the Swiss reserve market.

This talk is part of the Isaac Newton Institute Seminar Series series.

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