Allocation of unit start-up costs using Cooperative game theory

This paper discusses a three-part generation offer strategy that enables generators to put in unbundled variable operating costs and fixed start-up/no-load costs. We then propose methods based on cost sharing axioms to allocate fixed start-up/no-load costs among electricity consumers/load/retailers that take into account equity and rationality considerations. We focus on the single period cost allocation first. We apply three well-known game theoretic axioms: the core, the nucleolus, and the Shapley value. We discuss the relative merits and demerits of each criterion and also explore certain theoretical conditions for the existence of the core and the Shapley value lying inside the core. Finally, the multiperiod start-up cost allocation problem is studied. Allocations based on individual periods vis-a`-vis composite allocation for all periods are compared and contrasted. Numerical examples are used to illustrate all theoretical concepts.