A Comparison of Three Methods for ISO Pricing

In the presence of non-convex constraints, RTOs/ISOs need to introduce side payments to ensure non-confiscatory pricing. The side payment is not uniform and is non-transparent. To address this concern, Convex Hull Price (CHP) is developed to minimize uplift. However, the side payment defined in the...

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Bibliographic Details
Published in:IEEE transactions on energy markets, policy and regulation policy and regulation, 2024-06, p.1-12
Main Authors: Chen, Yonghong, O'Neill, Richard, Whitman, Peter
Format: Article
Language:English
Subjects:
average incremental cost pricing
Cogeneration
convex hull pricing
Costs
Generators
make whole payment
MISO communication
mixed-integer programming
Pricing
Production
Real-time systems
security-constrained unit commitment
uplift payment
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Summary:In the presence of non-convex constraints, RTOs/ISOs need to introduce side payments to ensure non-confiscatory pricing. The side payment is not uniform and is non-transparent. To address this concern, Convex Hull Price (CHP) is developed to minimize uplift. However, the side payment defined in the tariff of RTOs/ISOs usually only covers make-whole-payments (MWP), not consistent with the uplift defined in CHP. This paper introduces a unified solution approach that can achieve uniform prices under different market rules. Previous research has shown that by developing a convex hull and convex envelope formulation for individual resources, a CHP model that minimizes uplift can be solved by linear programming (LP) using relaxation of the binary terms of the security constrained unit commitment (SCUC) problem. This paper proves that by adjusting resource upper bounds based on the SCUC solution, the one-pass LP relaxation of the SCUC problem can also be used to derive average incremental price (AIC), eliminating MWP. Case studies using both small systems and the MISO full day ahead models are presented to compare MWP, uplift and generator profit under LMP, CHP and AIC.
ISSN:2771-9626
2771-9626
DOI:10.1109/TEMPR.2024.3417954