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SUMMARY:Electricity market reform to enhance the energy market pricing mec
 hanism: observations from PJM - Hung-po Chao (PJM)
DTSTART:20190107T160000Z
DTEND:20190107T170000Z
UID:TALK116749@talks.cam.ac.uk
CONTACT:INI IT
DESCRIPTION:Electricity market reform to enhance the energy and reserve pr
 icing mechanism: Observations from PJM<br><br>by Hung-po Chao<br><br>Abstr
 act<br><br>For more than 20 years\, the PJM wholesale markets have success
 fully worked to promote competition\, produce stable energy prices and att
 ract competitive resource investments to ensure efficient and reliable ope
 rations. However\, in recent years\, the PJM markets have been undergoing 
 a significant transition. While such transitions have also occurred elsewh
 ere\, each has resulted in some unique challenges. <br>This paper examines
  issues regarding efficient price formation in the energy and reserve mark
 ets under non-convex.  In principle\, with non-convexity\, no market clear
 ing prices exist without side payments.  In a pool-based wholesale electri
 city market\, one of the greatest challenges unmatched in scale and comple
 xity is that in the day-ahead and real-time markets\, after running a mixe
 d integer programming model for solving a security constrained economic co
 mmitment and dispatch problem to determine the market allocations\, a pric
 ing model is employed to determine the market clearing prices and side pay
 ments in ways that must promote economic efficiency\, consistent incentive
 s and revenue sufficiency. <br><br>One of the most severe limitations of t
 he current pricing mechanism (locational marginal pricing or LMP) is that 
 LMP is not incentive compatible.  This limitation has caused adverse effec
 ts in operations and investments. Building on the classic Lagrangian dual 
 formulation\, this paper extends the existing pricing method in a way that
  is dominant strategy incentive compatible in a competitive market with a 
 large number of independent suppliers\, and like a Vickery-Clark-Grove mec
 hanism\, truthful revelation would become a dominant strategy.  The convex
  hull pricing method or called the extended LMP\, is a well-known case whi
 ch yields the minimum uplift.  Moreover\, integer relaxation is a computat
 ionally practical implementation that ensures incentive compatibility prod
 ucing generally good\, and often exact\, approximations to ELMP solutions 
 if the cost functions are homogeneous of degree one.  <br><br>As market co
 ntinues to evolve with flattening demand growth\, flattening supply curves
  with low marginal costs and penetration of renewable resources with zero 
 marginal cost\, non-convex conditions will become growingly important.   A
  key advantage of enhanced pricing mechanism is that it would form price s
 ignals in ways that would foster economic efficiency in operations and inv
 estments\, demand participation and market innovation.
LOCATION:Seminar Room 1\, Newton Institute
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