Electricity Market Design and Market Clearing
What this domain tests
This domain tests auction and dispatch design: how bids become schedules and prices, how day-ahead and real-time markets interact, and how co-optimized energy and reserve clearing affects outcomes.
Core rules and concepts
- Auction formats: uniform-price auctions pay all cleared units the marginal clearing price; pay-as-bid auctions pay each unit its bid. Uniform pricing supports price-following and preserves inframarginal rents.
- Security-constrained unit commitment (SCUC) selects on/off status and startup/shutdown over a horizon; security-constrained economic dispatch (SCED) sets outputs for a single interval.
- Co-optimization: energy and reserves are cleared together because a reserve obligation consumes headroom and can change the energy merit order.
- Block and complex bids: minimum-run, ramp, and linked block bids can create non-convexities; clearing may require uplift payments.
- Convergence bidding: virtual bids arbitrage day-ahead and real-time price differences and can improve convergence, but are subject to collateral and position limits.
Worked example
Bids: 30 MW at $10, 50 MW at $20, 80 MW at $30. Demand is 120 MW. Clear 30 MW at $10 and 50 MW at $20, then 40 MW from the $30 bid. Under uniform pricing the market clears at $30/MWh. Total energy payment is 120 × 30 = $3,600. The $10 unit earns rent (30 − 10) × 30 = $600; the $20 unit earns (30 − 20) × 50 = $500; the marginal unit earns zero rent on its cleared 40 MW. Under pay-as-bid, payments would be $300 + $1,000 + $1,200 = $2,500, changing incentives but not the physical dispatch.
Traps that cost marks
Assuming pay-as-bid lowers consumer cost in every case; ignoring startup and no-load costs; forgetting that reserve co-optimization can raise energy prices; treating block bids as divisible; and confusing SCUC (commitment) with SCED (dispatch).