Single and Multi-settlement Approaches to Market Clearing Mechanisms under Demand Uncertainty

Electricity markets face a substantial amount of uncertainty. Traditionally this uncertainty has been due to varying demand. With the integration of larger proportions of volatile renewable energy, this added uncertainty from generation must also be faced. Conventional electricity market designs cope with uncertainty by running two markets: a day ahead or pre-dispatch market that is cleared ahead of time, followed by a realtime balancing market to reconcile actual realizations of demand and available generation. In such markets, the day ahead market clearing process does not take into account the distribution of outcomes in the balancing market. Recently an alternative so-called stochastic settlement market has been proposed (see e.g. Pritchard et al. [5] and Bouffard et al. [2]). In such a market, the ISO co-optimizes pre-dispatch and spot in one single settlement market. By considering all possible demand realizations ahead of time, pre and spot dispatch is deemed to be scheduled more efficiently. In this paper we consider simplified models for both market clearing mechanisms. Our models are targeted towards analyzing imperfectly competitive markets. We will demonstrate that this stochastic programming market clearing mechanism is indeed more efficient under the assumption of symmetry, however somewhat contrary to intuition, this result fails in an asymmetric example that we provide.