Recovery mechanisms in day-ahead electricity markets with non-convexities - Part I: Design and evaluation methodology

In centralized day-ahead electricity markets with marginal pricing, unit commitment costs and capacity constraints give rise to non-convexities which may result in losses to some of the participating generating units. Therefore, a recovery mechanism is required to compensate them. In this paper, we present and analyze several recovery mechanisms that result in recovery payments after the market is cleared. Each of these mechanisms results in a different type and/or amount of payments for each participating unit that exhibits losses. We also propose a methodology for evaluating the bidding strategy behavior of the participating units for each mechanism. This methodology is based on the execution of a numerical procedure aimed at finding joint optimal bidding strategies of the profit-maximizing units. In a companion follow-up paper (Part II), we apply this methodology to evaluate the performance and incentive compatibility of the suggested recovery mechanisms on a simplified test case model of the Greek electricity market.