Management method of the balance account based on incentive compatible theory

In the unilateral open electricity market in China, the balance account is created as "regulator" between the bidding price of generation and retail price of electricity. Currently, the management of the balance account has serious defects. This might lead to the huge deficit and endanger the operation of market. Based on the incentive compatible principle, we propose a new method to manage the balance account through reward-penalty in the paper. The optimal bidding strategy for the power suppliers considering the new management method is also provided. The test results indicate that the proposed bidding strategy can mitigate the market power of the generation, reduce the market clearing price significantly, keep the fund of the balance account fluctuating within a certain range and further ensure the stability and sustainability of power market operation.