Energy-reserve markets with non-convexities: An empirical analysis

In this paper, we address the design of a joint energy-reserve electricity market with non-convexities which are due to the fixed costs and capacity constraints of the generation units. Motivated by the relevant literature, we state a bid recovery mechanism that applies to the day-ahead scheduling problem, which is modeled as a mixed-integer linear programming problem. However, the particularly complex nature of the problem, especially if we consider it in its full scale, makes it extremely difficult if not impossible to analytically assess the market operation, under various market designs. Therefore, we proceed to an empirical analysis that aims to provide useful insight in evaluating the incentive compatibility of pricing and compensation schemes based on marginal pricing theory. In order to understand the bidding behavior of the participants and exhibit the proposed methodology, we present an illustrative example, based on Greece´s day-ahead energy-reserve market.