On reducing uplift payment in electricity markets

In current U.S. deregulated wholesale electricity markets, an auction mechanism that minimizes the total bid cost is used to select bids and their output levels. Energy market clearing prices (MCPs) are derived from the shadow prices associated with the system demand constraints in an economic dispatch process with fixed unit commitment status. Therefore they do not reflect no-load and start-up costs, resulting in the uplift payments. To reduce such side payments and improve the market transparency, the ldquoconvex hull pricing modelrdquo is adopted, and ldquoonline capacity constraintsrdquo are introduced to the energy market, requiring the total online capacities to be greater than or equal to the system demand. With the associated multipliers serving as uniform ldquono-load clearing prices,rdquo the total uplift payment is proved to be reduced based on optimality conditions for multipliers. Numerical examples support the analytical results and shed insights on different types of uplift payments.