Design and operation of electricity markets: dynamics, uncertainty, pricing and competition

The work presented in this dissertation focuses on the design and operation of electricity markets with an emphasis on modeling the impacts of physical characteristics of electricity. These characteristics typically introduce uncertainty, inter-temporal dynamics and lumpy costs/benefits into the markets, and lead to a violation of the fundamental assumptions in the traditional static economic analysis. Unfortunately, the conclusions from these static models have been adopted naively in the current electricity market practices, leading to undesirable consequences, including sudden and large price swings, difficulties in clearing of markets, significant ex-post side payments, and gaming opportunities for market participants. This dissertation contributes to the resolution of several challenges: First, we aim to contribute to the evaluation of the suitability of competitive equilibrium as the market design model in the presence of physical characteristics of electricity system. The standard conclusions of competitive equilibrium theory are extended in a general dynamic setting, but analytical results show that these conclusions hold only on average. Such results theoretically explain the exotic behavior of competitive equilibrium prices. Second, this work also contributes to resolving computational challenges in prescribing prices as well as understanding the strategic complications introduced by physical characteristics. In particular, pricing and uplift payment mechanisms for electricity markets with nonconvexities are discussed. An extreme-point subdifferential (EPSD) algorithm for obtaining a global maximizer of the Lagrangian dual problem, interpreted as the convex hull price with the potential to reduce or eliminate uplift payments, is proposed. Numerical experiments illustrate the finite-termination property and show that the performance of the algorithm compares well with standard subgradient methods on the examples considered. Finally, the convex hull pricing scheme is compared with the currently employed marginal-cost pricing scheme in duopolistic power markets in which firms submit their offer functions while abiding by capacity constraints. Market participants' offering behavior and the corresponding equilibria are studied under these two pricing mechanisms. Existence of equilibria and numerical solutions of these equilibria are examined. We conclude with studies of the long-term impact of pricing mechanisms on capacity expansion, and start-up cost offers.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Electrical & Computer Engr

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2013

Author dc:creator

• Wang, Gui

Contributors dc:contributor

• Meyn, Sean P.
• Shanbhag, Vinayak V.
• Sauer, Peter W.
• Baryshnikov, Yuliy

• Electricity market
• power system
• smart grid
• market design
• competitive equilibrium
• dynamic system
• random process
• electricity pricing
• non-convex market
• convex hull price
• uplift payment
• optimization
• Lagrangian dual
• unit commitment
• economic dispatch
• Nash equilibrium
• game theory
• discontinuous game

Statement dc:rights

• Copyright 2013 Gui Wang

Language dc:language

en

Handle dc:identifier

http://hdl.handle.net/2142/44341

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/44341