Iterative Mechanisms for Electricity Markets

Shi Pu, Alfredo Garcia

Published 2016-08-31Version 1

We consider the problem of designing the rules by which market dispatch and payment to participants are gradually adjusted while taking into account network and reliability constraints so as to ensure the market clears with an efficient outcome. Small adjustments (which require minimal information from market participants at each iteration) facilitate the identification of incentives for ensuring truthful reporting of private information. In this paper, we propose a class of iterative mechanisms and show this class exhibits many desirable properties (approximately): incentive compatibility, efficiency, individual rationality and (weak) budget balance. In the second part of the paper, we analyze an iterative mechanism for stochastic market clearing, a pressing need given the increasing penetration of highly intermittent renewable generation technologies. In this case, the marginal cost of adjustments may only be estimated with some error. We show that truthful reporting is a Nash equilibrium and the resulting dispatch converges almost surely to the efficient dispatch.