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On some advantages of convex hull pricing for the European electricity auction

Author

Listed:
  • Stevens, Nicolas

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

  • Papavasiliou, Anthony

    (National Technical University of Athens)

  • Smeers, Yves

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

Abstract

Since the liberalization of the power sector and the creation of wholesale electricity markets, the question of how to price the non-convexities that are present in the market has attracted the interest of both academics and practitioners. Over the years, US markets have studied and adopted different and evolving pricing rules. Since the ‘‘Trilateral Market Coupling’’ (2006), the European day-ahead market has opted for a notably different pricing rule. Recently, EU stakeholders have undertaken research to reform it, and have indicated an interest for some approaches that are discussed in the other side of the Atlantic. Our paper aims at contributing to the debate. We analyse six different pricing methods. We establish several mathematical properties for enabling their accurate comparison. Our findings are illustrated on stylized examples and numerical simulations that are performed on realistic datasets. Both theoretical and numerical evidences that are gathered in our paper point towards the advantages of convex hull pricing.

Suggested Citation

  • Stevens, Nicolas & Papavasiliou, Anthony & Smeers, Yves, 2024. "On some advantages of convex hull pricing for the European electricity auction," LIDAM Reprints CORE 3288, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:3288
    DOI: https://doi.org/10.1016/j.eneco.2024.107542
    Note: In: Energy Economics, 2024, vol. 134, 107542
    as

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    More about this item

    Keywords

    Convex hull pricing ; Non-uniform pricing ; Non-convexities ; European electricity market;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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