Research on Incentive Pricing Model of Deregulated Power Markets(2005年公共管理国际会议论文).doc

Research on Incentive Pricing Model of Deregulated Power Markets ( 1.FANG Yong 2.Wang Ming-ming School of Economic Management, Beijing University of Chemical Technology,Beijing P.R.China, 100029 Abstract Information asymmetry has been accompanied with the emergence of oligopolistic electricity markets. Under the market-clearing pricing auction or pay-as-bid auction, generators have every motivation to depart from bidding their marginal costs so as to maximize the profits they can earn. This will introduce immeasurable inefficiencies in the dispatch of power generation. Using mechanism design theory and marginal cost pricing theory, an incentive compatible bidding mechanism is introduced for power generation competition in electricity markets. The bidding system embodies the incentives to bid true marginal costs for rational generators and the requirements of generators’ fixed cost recovery. Especially, marginal generators can receive relatively large fixed cost remuneration, which will be helpful to give enough incentives to the risk-averse investors in peaking generators. Numerical simulations using Monte Carlo method are carried out to reveal the effectiveness of the proposed bidding mechanism. Key words Electricity markets, Bidding mechanism, Incentive compatibility, Monte Carlo 1 Introduction The ongoing restructuring of electrical energy markets in China and around the world motivates further analysis of the energy markets and the behavior their participants in the new deregulated environment. Power generators, challenged to act in this new business environment characterized by imperfect information and the absence of historical data, are interested mainly in issues such as strategy formulation and risk minimization, while regulatory authorities and organizations, designate to ensure security of supply and to eliminate market power, address issues concerning the formation and optimization of the regulatory framework, competition, and price mechanisms [1].