Competitive equilibrium in electricity markets with heterogeneous users and price fluctuation penalty

We develop a flexible model of competitive equilibrium in electricity markets involving heterogeneous users with shiftable demand and generator with ramp-up and ramp-down costs. While the competitive equilibrium is efficient, it may feature undesirably high price volatility. To control this volatility, we introduce an explicit penalty term on the L - 2 norm of price fluctuation in the system objective. We then establish an equivalent representation of this penalized problem. Based on the new formulation, we design alternative allocation rules to reduce price fluctuation and propose a distributed market implementation thereof.