Some Inequalities Related to the Analysis of Electricity Auctions.pdfVIP

Some inequalities related to the analysis of electricity auctions ¨ ¨ ∗ Peter Hasto Department of Mathematics and Statistics ¨ ¨ ¨ P.O. Box 68 (Gustav Hallstroms vag 2b) FI-00014 University of Helsinki, Finland peter.hasto@helsinki.fi ¨ † Par Holmberg Department of economics, Uppsala University, SE-751 20 Uppsala, Sweden par.holmberg@nek.uu.se August 22, 2005 Abstract Most balancing markets of electric power are organized as uniform-price auctions. In 2001, the balancing market of England and Wales switched to a pay-as-bid auction with the intention of reducing wholesale electricity prices. Numerical simulations of an electricity auction model have indicated that this should lead to decreased average prices. In this article we prove two inequalities which give an analytic proof of this claim in the same model. Keywords : Uniform-price auctions, pay-as-bid auctions, wholesale electricity markets, inequalities. Mathematics Subject Classification (2000) : Primary 26D15; Secondary 91B26. 1 Introduction In the balancing market, the system operator buys last-minute power from electric power producers.