# Modified convex hull pricing for power markets with price-sensitive load

## TL;DR

This paper introduces a modified convex hull pricing method for power markets that accounts for operational constraints, resulting in more accurate prices and reduced uplift payments compared to traditional convex hull pricing.

## Contribution

The paper proposes a novel modification to convex hull pricing by defining market player feasible sets based on economically feasible dispatch volumes, improving pricing accuracy.

## Key findings

- Reduced total uplift payments compared to standard convex hull pricing
- Different set of market prices generated by the modified method
- Enhanced consideration of operational constraints in pricing

## Abstract

We consider a general power market with price-sensitive consumer bids and non-convexities originating from supply (start-up and no-load costs, nonzero minimum output limits of generating units, etc.) and demand. The convex hull (minimum-uplift) pricing method produces the set of power prices that minimizes the total uplift payments to the market players needed to compensate their potential profits lost by accepting the centralized dispatch solution. All opportunities to supply (consume) any other output (consumption) volumes allowed by market player individual operational constraints are considered as foregone in the convex hull pricing method. We modify the convex hull pricing algorithm by defining for each market player a modified individual feasible set that is utilized in the lost profit calculation. These sets are based on the output (consumption) volumes that are economically and technologically feasible in the centralized dispatch. The new pricing method results in the generally different set of market prices and lower (or equal) total uplift payment compared to the convex hull pricing algorithm.

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Source: https://tomesphere.com/paper/1702.03738