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Pricing in non-convex markets with quadratic deliverability costs

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  • Xiaolong Kuang
  • Alberto J. Lamadrid
  • Luis F. Zuluaga

Abstract

The problem of obtaining market-clearing prices for markets with non-convexities has been widely studied in the literature. This is particularly the case in electricity markets, where worldwide deregulation leads to markets in which non-convexities arise from the decisions of market operators regarding which generators are committed to provide electricity power. Here, we extend seminal results in this area to address the problem of obtaining market-clearing prices for markets in which beyond non-convexities, it is relevant to account for convex quadratic market costs. In a general market, such costs arise from quadratic commodity costs or transactions costs. In an electricity market, such quadratic costs arise when ramping costs need to be considered due to the presence of renewable energy sources, which continue to increase their participation in electricity markets. To illustrate our results, we compute and analyze the clearing prices of a classical market problem with the addition of ramping costs.

Suggested Citation

  • Xiaolong Kuang & Alberto J. Lamadrid & Luis F. Zuluaga, 2017. "Pricing in non-convex markets with quadratic deliverability costs," Papers 1705.01675, arXiv.org.
    • Handle: RePEc:arx:papers:1705.01675
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    References listed on IDEAS

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