Modified convex hull pricing for fixed load power markets

TL;DR

This paper introduces a modified convex hull pricing method for fixed load power markets that reduces uplift payments by excluding infeasible output volumes from profit calculations, leading to more efficient pricing.

Contribution

It proposes a novel pricing approach that refines convex hull pricing by excluding infeasible generator outputs, improving price accuracy and reducing uplift payments.

Findings

Lower total uplift payments compared to traditional convex hull pricing.

Different set of market prices generated by the new method.

More accurate reflection of feasible generator outputs.

Abstract

We consider fixed load power market with non-convexities originating from start-up and no-load costs of generators. The convex hull (minimal uplift) pricing method results in power prices minimizing the total uplift payments to generators, which compensate their potential profits lost by accepting centralized dispatch solution, treating as foregone all opportunities to supply any other output volume allowed by generator internal constraints. For each generator we define a set of output volumes, which are economically and technologically feasible in the absence of centralized dispatch, and propose to exclude output volumes outside the set from lost profit calculations. New pricing method results in generally different set of market prices and lower (or equal) total uplift payment compared to convex hull pricing algorithm.