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Multi-dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules

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  • Chao, Hung-Po
  • Wilson, Robert

Abstract

System operators in the electricity industry purchase reserve capacity in a procurement auction in which suppliers offer two-part bids, one part for making capacity available and another part for supplying incremental energy when called. Key ingredients of an efficient auction design are the scoring rule for comparing bids, and the settlement rule for paying accepted bids. We use the principle of incentive compatibility to establish that very simple rules suffice. In particular, the scoring rule uses only the capacity part of the bid, and energy supplies are paid the spot price. This is the design adopted in California. Copyright 2002 by Kluwer Academic Publishers

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  • Chao, Hung-Po & Wilson, Robert, 2002. "Multi-dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules," Journal of Regulatory Economics, Springer, vol. 22(2), pages 161-183, September.
    • Handle: RePEc:kap:regeco:v:22:y:2002:i:2:p:161-83
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