On some advantages of convex hull pricing for the European electricity auction

Nicolas Stevens, Anthony Papavasiliou and Yves Smeers
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Nicolas Stevens: Université catholique de Louvain, LIDAM/CORE, Belgium
Anthony Papavasiliou: National Technical University of Athens
Yves Smeers: Université catholique de Louvain, LIDAM/CORE, Belgium

No 3288, LIDAM Reprints CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Since the liberalization of the power sector and the creation of wholesale electricity markets, the question of how to price the non-convexities that are present in the market has attracted the interest of both academics and practitioners. Over the years, US markets have studied and adopted different and evolving pricing rules. Since the ‘‘Trilateral Market Coupling’’ (2006), the European day-ahead market has opted for a notably different pricing rule. Recently, EU stakeholders have undertaken research to reform it, and have indicated an interest for some approaches that are discussed in the other side of the Atlantic. Our paper aims at contributing to the debate. We analyse six different pricing methods. We establish several mathematical properties for enabling their accurate comparison. Our findings are illustrated on stylized examples and numerical simulations that are performed on realistic datasets. Both theoretical and numerical evidences that are gathered in our paper point towards the advantages of convex hull pricing.

Keywords: Convex hull pricing; Non-uniform pricing; Non-convexities; European electricity market (search for similar items in EconPapers)
JEL-codes: C61 D41 D44 D47 Q41 (search for similar items in EconPapers)
Date: 2024-04-22
Note: In: Energy Economics, 2024, vol. 134, 107542
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvrp:3288

DOI: 10.1016/j.eneco.2024.107542

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