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ISO Net Surplus Collection and Allocation in Wholesale Power Markets Under Locational Marginal Pricing

Author

Listed:
  • Li, Hongyan
  • Tesfatsion, Leigh

Abstract

This study uses 5-bus and 30-bus test cases to explore ISO net surplus (congestion rent) collections and allocations in wholesale power markets with grid congestion managed by locational marginal prices (LMPs). Price-sensitivity of demand and generator learning capabilities are taken as experimental treatment factors. A key finding is that treatments resulting in greater generator capacity withholding, hence higher and more volatile LMPs, also result in greater ISO net surplus collections that can be substantial in size. A key conclusion is that ISO net surplus collections should be used pro-actively to mitigate the conditions encouraging generator capacity withholding and hence high and volatile LMPs rather than to provide ex post support for LMP payment offsets and LMP volatility risk hedging as is currently the norm. Related work can be found at: http://www2.econ.iastate.edu/tesfatsi/AMESMarketHome.htm

Suggested Citation

  • Li, Hongyan & Tesfatsion, Leigh, 2009. "ISO Net Surplus Collection and Allocation in Wholesale Power Markets Under Locational Marginal Pricing," Staff General Research Papers Archive 13092, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:13092
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    File URL: http://www2.econ.iastate.edu/papers/p1457-2009-07-09.pdf
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    File URL: http://www2.econ.iastate.edu/tesfatsi/ISONetSurplus.WP09015.pdf
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    Cited by:

    1. Paul L. Borrill & Leigh Tesfatsion, 2011. "Agent-based Modeling: The Right Mathematics for the Social Sciences?," Chapters,in: The Elgar Companion to Recent Economic Methodology, chapter 11 Edward Elgar Publishing.

    More about this item

    Keywords

    Restructured wholesale power markets; ISO net surplus (congestion rents); multi-agent learning; demand-bid price sensitivity; AMES Wholesale Power Market Test Bed;

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D6 - Microeconomics - - Welfare Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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