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arXiv · 2305.12309

Uniform Pricing vs Pay as Bid in 100%-Renewables Electricity Markets: A Game-theoretical Analysis

Dongwei Zhao·Audun Botterud·Marija Ilic
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Abstract

This paper evaluates market equilibrium under different pricing mechanisms in a two-settlement 100%-renewables electricity market. Given general probability distributions of renewable energy, we establish game-theoretical models to analyze equilibrium bidding strategies, market prices, and profits under uniform pricing (UP) and pay-as-bid pricing (PAB). We prove that UP can incentivize suppliers to withhold bidding quantities and lead to price spikes. PAB can reduce the market price, but it may lead to a mixed-strategy price equilibrium. Then, we present a regulated uniform pricing scheme (RUP) based on suppliers' marginal costs that include penalty costs for real-time deviations. We show that RUP can achieve lower yet positive prices and profits compared with PAB in a duopoly market, which approximates the least-cost system outcome. Simulations with synthetic and real data find that under PAB and RUP, higher uncertainty of renewables and real-time shortage penalty prices can increase the market price by encouraging lower bidding quantities, thereby increasing suppliers' profits.

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Dongwei Zhao, Audun Botterud, Marija Ilic. 2023-05-21. Uniform Pricing vs Pay as Bid in 100%-Renewables Electricity Markets: A Game-theoretical Analysis. https://arxiv.org/abs/2305.12309

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