Economic Efficiency of Decentralized Unit Commitment from a Generator's Perspective

In this chapter, we study the optimal commitment of generation units in a decentralized market from the perspective of an individual market participant. We start by comparing the theoretic economic efficiencies of centralized and decentralized unit commitment (UC). We prove that under certain circumstances and in contrast to current teaching, centralized UC can lead to overall higher social welfare than decentralized UC, even in the case of complete market information. We then closer explore a self-scheduling generator’s ability to maximize profit using only publicly available price forecasts. Deploying the dynamic programming formulation from section [*** Cross-reference Eric ***], we motivate the usage of fat tail Cauchy stochastic price models instead of the more commonly used Normal distributions. Finally, we use a simple model to show how prices above marginal cost arise in a decentralized UC scheme as a natural consequence of the decentralized decision process explained before. This result challenges economic literature stating that market prices above marginal cost would clearly indicate gaming and the abuse of market power.