Payment cost minimisation auction for deregulated electricity market using mixed-integer linear programming approach

In deregulated electricity markets, currently, most independent system operators adopt the offer cost minimisation (OCM) auction, and pay-as-market clearing price (MCP) mechanism is used as settlement rule to determine the amount of payments. In such a structure, auction mechanism and settlement rule are not completely compatible because minimised costs differ from payment costs. In this regard, payment cost minimisation (PCM) mechanism is an alternative option as it minimises the total payment cost directly. Although, there exist numerous efficient solution methods for solving the OCM problem, the solution methods for solving PCM problem are very restricted and deficient. As the objective of study, the mixed-integer linear programming (MILP) formulation for solving the PCM problem is presented. Based on several case studies, the effectiveness of the MILP method for solving PCM problem, in comparison with the only acceptable existing method, is illustrated. Additionally, a novel solution methodology is presented for solving MILP formulation of PCM problems. Further, in this study, exponential start up cost curves are utilised instead of single block start up cost functions, as considered in previous studies. In addition, the effects of the shape of load profile on the performance of OCM mechanism, in comparison with PCM, are analysed.