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Market Design Considerations for Scarcity Pricing: A Stochastic Equilibrium Framework

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MESW02 - Electricity systems of the future: incentives, regulation and analysis for efficient investment

We develop a stochastic equilibrium framework for analyzing variations of two-settlement system in which energy and reserve capacity is traded in a day-ahead market followed by a real-time market. The framework is aimed at analyzing the impact of various short-term market design decisions on the remuneration of reserve capacity under operating reserve demand curves. The proposed framework accounts for risk aversion, real-time uncertainty, and a relaxed representation of unit commitment decisions. The framework can be used for analyzing the implication of various market design choices on the back-propagation of real-time prices. These choices include (i) the presence or absence of a real-time reserve capacity market, (ii) the simultaneous or sequential clearing of reserves and energy in day-ahead markets, and (iii) the presence or absence of virtual bidding. We propose a decomposition heuristic for solving the resulting non-convex equilibrium problem. We apply our framework for the analysis of market design choices on the remuneration of reserves in the Belgian electricity market.

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

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