NDLI: Bid Cost Minimization vs. Payment Cost Minimization: A Game Theoretic Study of Electricity Markets

Content Provider	IEEE Xplore Digital Library
Author	Feng Zhao Luh, P.B. Ying Zhao Yan, J.H. Stern, G.A. Shi-Chung Chang
Copyright Year	2007
Description	Author affiliation: Dept. of Electr. & Comput. Eng., Univ. of Connecticut, Storrs, CT (Feng Zhao; Luh, P.B.; Ying Zhao; Yan, J.H.; Stern, G.A.; Shi-Chung Chang)
Abstract	In deregulated electricity markets, auction mechanisms are used to select supply bids for energy and ancillary services. Currently, most independent system operators in the US use a "bid cost minimization" auction mechanism that minimizes total supply bid costs to select bids, and afterwards settle the market based on market-clearing prices. Consequently, the consumer payments could be significantly higher than the minimized bid cost from the auction. This gives rise to "payment cost minimization," an alternative auction mechanism that directly minimizes consumer payments. A review of literature shows that with the same set of supply bids, payment cost minimization leads to reduced consumer payments as compared to bid cost minimization. Since power suppliers may bid differently under different auction mechanisms, investigation of market behaviors is necessary for the comprehensive assessment of auction mechanisms. In this paper, strategic behaviors of suppliers are studied within the game theoretic framework for the two auction mechanisms. Simple two-supplier Nash games are first analyzed to provide insights. General matrix Nash games are then solved by using the approximate Nash concept and with our auction algorithms developed earlier as the core. Testing results demonstrate the cost savings for consumers under payment cost minimization as compared to bid cost minimization.
Starting Page	1
Ending Page	8
File Size	442331
Page Count	8
File Format	PDF
ISBN	142441296X
ISSN	19325517
DOI	10.1109/PES.2007.385882
Language	English
Publisher	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Publisher Date	2007-06-24
Publisher Place	USA
Access Restriction	Subscribed
Rights Holder	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Subject Keyword	Game theory Electricity supply industry Nash equilibrium Power supplies Mathematical programming Electricity supply industry deregulation Cost function Functional programming Availability Strategic planning Payment cost minimization Bid cost minimization Electricity auctions Matrix game Strategic behaviors
Content Type	Text
Resource Type	Article

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