Interdependencies of Electricity Market Characteristics and Bidding Strategies of Power Producers

In the context of the ongoing deregulation of the electricity industry, we revisit the commonly held assumption that, under the condition of perfect information, a decentralized unit commitment would lead to the same power quantities traded and the same optimal social welfare as centralized unit commitment. Taking fixed operating costs into account, we show that meeting decentralized performance objectives of the individual market participants can lead to a lower efficiency than minimizing total operating cost in a decentralized way. This result concerns short-term optimization, and does not consider long-term investment issues. Next, the task of optimally self-scheduling generators to maximize profits in a deregulated electricity market is investigated from the standpoint of an individual market participant. We show how a generator owner can improve his scheduling tactics by using stochastic dynamic programming and assuming a Cauchy error distribution of forecast prices. Power auction markets require power producers to internalize start-up / shut-down costs of their units when submitting their bids. With the help of an abstract example, we finally show that a generator owner’s optimum bid sequence for a centralized auction market is above marginal cost even where is no market power-related strategic bidding. We conclude that marginal production costs cannot be used as baseline for the assessment of market power in electricity markets. Thesis Supervisor: Dr. Marija D. Ilić Title: Senior Research Scientist