A Stochastic Risk-Averse Model to Price Energy in Pool-Based Electricity Markets with Non-Convex Costs and Revenue Caps

This is the authors' abstract. We don't add key points for this paper.

In pool-based electricity markets, generators may have incentives to deviate from market-clearing outcomes, due to non-convex costs resulting from their operational specifications. System operators compensate generators for those costs through uplift payments. However, uplift is not reflected in market prices, distorting price signals. Windfall profits by generators, as experienced due to high energy prices, triggered the consideration of a revenue cap to limit these profits. Also, system operators may need costly balancing when their decisions do not adequately account for adverse scenarios. This work proposes a risk-averse primal-dual pricing, co-optimising energy and reserves, explicitly ensuring cost recovery for generators and allowing for a revenue cap consideration. The devised model balances demand and supply at a least possible deviation from social welfare under adverse renewable generation scenarios. Out of a case study on a real system, it is shown that the proposed pricing schemes result in different scheduling outcomes. Consideration of a risk-averse decision framework leads to more alignment between schemes. A revenue cap brings about the least consumer expenses.