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Do Centrally Committed Electricity Markets Provide Useful Price Signals?

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  • Ramteen Sioshansi and Ashlin Tignor

Abstract

Centrally committed markets rely on an independent system operator to determine the commitment and dispatch of generators. This is done by solving a unit commitment model, which is an NP-hard mixed integer program that is rarely (if ever) solved to complete optimality. We demonstrate, using a case study based on the ISO New England system, that near-optimal solutions that are very close to one another in terms of overall system cost can yield very different generator surpluses and prices. We further demonstrate that peaking generators are more prone to surplus differences between near-optimal solutions and that transmission buses that are most prone to binding transmission constraints experience the greatest price fluctuations. Based on these findings, we discuss the potential benefits of a decentralized market design in providing more robust price signals.

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  • Ramteen Sioshansi and Ashlin Tignor, 2012. "Do Centrally Committed Electricity Markets Provide Useful Price Signals?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    • Handle: RePEc:aen:journl:ej33-4-05
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    2. Eric L. Prentis, 2014. "Deregulation & Privatization: Texas Electric Power Market Evidence," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 5(2), pages 117-126.

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