Electricity Market Mechanisms.pdf

The study examines the impact of simplified market mechanisms on non-convex markets, specifically the Italian electricity market. Suppliers alter their offers to increase profits from real-time production, resulting in re-dispatch costs averaging 15% of total energy consumption costs. A counterfactual market design accounting for non-convexities yields similar wholesale energy costs to the existing simplified design. Non-convexities in generation unit and transmission network operation lead to inefficient outcomes, and regulators have taken two approaches to address this challenge: ignoring non-convexities or accounting for them in market design. The study highlights the need for market designs that consider non-convexities to achieve efficient outcomes. Key findings include:

Suppliers strategically alter their offers to increase profits from real-time production.
Re-dispatch costs average 15% of total energy consumption costs.
A counterfactual market design accounting for non-convexities yields similar wholesale energy costs.
Non-convexities in generation unit and transmission network operation lead to inefficient outcomes.
* Regulators have taken two approaches to address non-convexities: ignoring them or accounting for them in market design.