Markets for Electric Power: Experimental Results for Alternative Auction Institutions

One-sided Markets for Energy | Bernard, John | Ethier, Robert | Gan, David | Mount, Timothy | Murillo-Sánchez, Carlos | Schuler, Richard | Schulze, William | Thomas, Robert J. | Zimmerman, Ray D.
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J. Bernard, R. Ethier, T. Mount, W. Schulze, R. Zimmerman, D. Gan, C. Murillo-Sánchez, R. Thomas, R. Schuler
Final version of Experimental Results for Single Period Auctions presented at HICSS, Jan 6-9, 1998, Kona, Hawaii.

The objective of this paper is to present experimental results for testing the performance of different auction mechanisms related to the introduction of competitive markets for the generation of electricity. The research is based on the concept of smart markets introduced by Vernon Smith and a simulation model (PowerWeb) of a realistic bulk power system. There are unique physical aspects associated with the supply of electricity (e.g. required instantaneous matching of supply and demand, unintended congestion of parallel transmission routes and maintenance of system stability in response to disturbances). As a result, traditional theories of efficient markets and auction structures developed for other commodities may not be efficient if applied without alteration to markets for electricity. Conversely, current utility rules of operation developed for a centrally-planned regime may not be appropriate in a competitive environment. The research does not address the issues of multiperiod operations (unit commitment) and multidimensional markets (ancillary services), and considers only real power in a single time period. The main objective is to test three alternative auction mechanisms when market power is a potential problem. This situation occurs when limits on transmission lines are binding to form a load pocket in which demand is met by a few (in this case two) generators.