Approximation of supply curves

TL;DR

This paper presents a method for approximating supply curves using a one-step basis, deriving the L2 approximation, and demonstrating its application with real European electricity market bid data.

Contribution

It introduces a new procedure for selecting nodes in supply curve approximation and applies it to large-scale market data.

Findings

Effective approximation of supply curves demonstrated on European electricity market data

Procedure for node selection improves approximation accuracy

Method applicable to large datasets in electricity markets

Abstract

In this note, we illustrate the computation of the approximation of the supply curves using a one-step basis. We derive the expression for the L2 approximation and propose a procedure for the selection of nodes of the approximation. We illustrate the use of this approach with three large sets of bid curves from European electricity markets.