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Double-sided auction mechanism design in electricity based on maximizing social welfare

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  • Zou, Xiaoyan

Abstract

An efficient electricity double-sided auction mechanism should control market power and enhance the social welfare of the electricity market. Based on this goal, the paper designs a new double-sided auction mechanism. In the new mechanism, the social welfare contribution of each participant plays a pivotal role, because this contribution is the critical factor in market clearing, payment settling, and transaction matching rules. In particular, each winner of the auction can gain transfer payments according to his contribution to social welfare in the electricity market, and this gives the mechanism the ability to control the market power of some participants. At the same time, this mechanism ensures that the market organizer balances his budget. We then conduct a theoretical and empirical analysis based on the Spanish electricity market. Both of the results show that compared to the uniform-pricing mechanism, the new mechanism can reduce market power of participants and enhance the social welfare of the electricity market.

Suggested Citation

  • Zou, Xiaoyan, 2009. "Double-sided auction mechanism design in electricity based on maximizing social welfare," Energy Policy, Elsevier, vol. 37(11), pages 4231-4239, November.
    • Handle: RePEc:eee:enepol:v:37:y:2009:i:11:p:4231-4239
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    1. Natalia Fabra & Nils‐Henrik Fehr & David Harbord, 2006. "Designing electricity auctions," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 23-46, March.
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    5. Hase, Ryo & Shinomiya, Norihiko, 2016. "A mathematical modeling technique with network flows for social welfare maximization in deregulated electricity markets," Operations Research Perspectives, Elsevier, vol. 3(C), pages 59-66.
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    7. Maria Chiara D'Errico & Carlo Andrea Bollino, 2015. "Bayesian Analysis of Demand Elasticity in the Italian Electricity Market," Sustainability, MDPI, vol. 7(9), pages 1-22, September.
    8. Ni Lei & Lanyun Chen & Chuanwang Sun & Yuan Tao, 2018. "Electricity Market Creation in China: Policy Options from Political Economics Perspective," Sustainability, MDPI, vol. 10(5), pages 1-15, May.
    9. Devine, Mel T. & Lynch, Muireann Á., 2017. "Inducing truthful revelation of generator reliability," Energy Economics, Elsevier, vol. 64(C), pages 186-195.
    10. Poudineh, Rahmatallah & Jamasb, Tooraj, 2014. "Distributed generation, storage, demand response and energy efficiency as alternatives to grid capacity enhancement," Energy Policy, Elsevier, vol. 67(C), pages 222-231.
    11. Jiang, Bo & Farid, Amro M. & Youcef-Toumi, Kamal, 2015. "Demand side management in a day-ahead wholesale market: A comparison of industrial & social welfare approaches," Applied Energy, Elsevier, vol. 156(C), pages 642-654.
    12. Zou, Peng & Chen, Qixin & Xia, Qing & He, Chang & Kang, Chongqing, 2015. "Incentive compatible pool-based electricity market design and implementation: A Bayesian mechanism design approach," Applied Energy, Elsevier, vol. 158(C), pages 508-518.

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