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

Vadim Borokhov

Published 2017-02-13Version 1

We consider power market with price-sensitive consumer bids and non-convexities originating from fixed (start-up and no-load) costs and/or nonzero minimal capacity limits of generating units. The convex hull (minimal uplift) pricing method produces the set of power prices, which 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 internal constraints are considered as foregone in the convex hull pricing method. We modify lost profit calculation by defining for each market player a set of output (consumption) volumes, which are economically and technologically feasible in the absence of centralized dispatch, and propose to exclude the rest of output (consumption) volumes from the 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.