Paper Info
Title
Semi-Lagrangean approach for price discovery in markets with non-convexities.
Abstract
From standard economic theory, the market clearing price for a commodity is set where the demand and supply curves intersect. Convexity is a property that economic models require for a competitive equilibrium, which is efficient and well-behaved and provides equilibrium prices. However, some markets present non-convexities due to their cost structure or due to some operational constraints that need to be addressed. This is the case for electricity markets where the electricity producers incur costs for shutting down a generating unit and then bringing it back on. Non-convex cost structures can be a challenge for the price discovery process, since the supply and demand curves may not intersect, or if they intersect, the price found may not be high enough to cover the total cost of production. We apply a Semi-Lagrangean approach to find a price that can be applied in the electricity pool markets where a central system operator decides who produces and how much they should produce. By applying the model to an example from the literature, we found prices that are high enough to cover the producer's total costs, and follows the optimal solution for achieving mining cost in production. The prices are an alternative solution to the price discovery problem in non-convexities economies; in addition, they provide nonnegative profits to all the generators without the use of side-payments or up-lifts, and closes the integrality gap. (C) 2011 Elsevier B.V. All rights reserved.
Year
DOI
Venue
2011
10.1016/j.ejor.2011.05.009
European Journal of Operational Research
Keywords
DocType
Volume
OR in energy,Mathematical programming,Non-convexities,Lagrangean relaxation
Journal
214
Issue
ISSN
Citations 
2
0377-2217
5
PageRank 
References 
Authors
0.63
4
2
Name
Order
Citations
PageRank
Veronica Araoz150.63
Kurt Jørnsten223224.52