Monday, December 10, 2018 - 11:00am to 12:00pm
Groseclose Room 402
Investment Effects of Pricing Schemes for Non-Convex Markets
A major motivation for competitive markets in electricity is their potential to coordinate eﬃcient entry and exit of generation resources. The efficiency of these decisions depends on the availability of transparent and complete price signals. Determining appropriate prices in non-convex markets, however, is not a straightforward task. To help resolve the incentive compatibility issues that arise when clearing these markets, operators have introduced a variety of price formation and uplift payment schemes. In this talk, we develop a two-stage capacity expansion model to investigate the impact that the choice of pricing scheme can have on generation investment decisions. Our results suggest that despite the presence of fixed cost elements, prices derived from marginal costs support the optimal capacity mix. The use of uplift payments to supplement these prices could lead to significant distortion of the capacity mix arising in competitive markets. Judicious implementation of enhanced price formation schemes, to the extent they eliminate the need for discriminatory side payments, may enable system operators to alleviate this distortion.
Jacob Mays is a PhD Candidate in the Department of Industrial Engineering & Management Sciences at Northwestern University. His research focuses on applications of stochastic optimization and statistical learning in power systems. Jacob holds an AB in chemistry and physics from Harvard University and an MEng in energy systems from the University of Wisconsin–Madison. He has also worked as a management consultant, primarily in the aviation and rail industries, and at the Federal Energy Regulatory Commission in Washington, DC.