Payment cost minimization auction in electricity markets

In deregulated electricity markets, offer cost minimization auction is used to minimize the total bid cost for selecting offer and demand bids. But a uniform market clearing price (MCP) is used for consumer payments. Hence, the minimized bid cost is different from settlement cost. The problem has a non-separable objective function and the bid curves are non-continuous. This paper proposes a combination theory based model to consider all possible combination of suppliers who can participate in auction for hourly system demand. These combinations are compared for minimum payment cost. Decision variables such as power levels, MCP and startup cost are included for calculation of minimum payment cost. Simulations reflect that the method is efficient and the payment cost for payment cost minimization auction is substantially lower than the payment cost for offer cost minimization auction, for a particular set of offer bids pertaining to certain demand.