Efficiency of linear supply function bidding in electricity markets

Yuanzhang Xiao, Chaithanya Bandi, Ermin Wei

Research output: Chapter in Book/Report/Conference proceedingConference contribution

3 Scopus citations

Abstract

We study the efficiency loss caused by strategic bidding behavior from power generators in electricity markets. In the considered market, the demand of electricity is inelastic, the generators submit their supply functions (i.e., the amount of electricity willing to supply given a unit price) to bid for the supply of electricity, and a uniform price is set to clear the market. We aim to understand how the total generation cost increases under strategic bidding, compared to the minimum total cost. Existing literature has answers to this question without regard to the network structure of the market. However, in electricity markets, the underlying physical network (i.e., the electricity transmission network) determines how electricity flows through the network and thus influences the equilibrium outcome of the market. Taking into account the underlying network, we prove that there exists a unique equilibrium supply profile, and derive an upper bound on the efficiency loss of the equilibrium supply profile compared to the socially optimal one that minimizes the total cost. Our upper bound provides insights on how the network topology affects the efficiency loss.

Original languageEnglish (US)
Title of host publicationConference Record of the 49th Asilomar Conference on Signals, Systems and Computers, ACSSC 2015
EditorsMichael B. Matthews
PublisherIEEE Computer Society
Pages689-692
Number of pages4
ISBN (Electronic)9781467385763
DOIs
StatePublished - Feb 26 2016
Event49th Asilomar Conference on Signals, Systems and Computers, ACSSC 2015 - Pacific Grove, United States
Duration: Nov 8 2015Nov 11 2015

Publication series

NameConference Record - Asilomar Conference on Signals, Systems and Computers
Volume2016-February
ISSN (Print)1058-6393

Other

Other49th Asilomar Conference on Signals, Systems and Computers, ACSSC 2015
CountryUnited States
CityPacific Grove
Period11/8/1511/11/15

ASJC Scopus subject areas

  • Signal Processing
  • Computer Networks and Communications

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  • Cite this

    Xiao, Y., Bandi, C., & Wei, E. (2016). Efficiency of linear supply function bidding in electricity markets. In M. B. Matthews (Ed.), Conference Record of the 49th Asilomar Conference on Signals, Systems and Computers, ACSSC 2015 (pp. 689-692). [7421220] (Conference Record - Asilomar Conference on Signals, Systems and Computers; Vol. 2016-February). IEEE Computer Society. https://doi.org/10.1109/ACSSC.2015.7421220