Market price calculations in restructured electricity markets

In the traditional organisation of the power market, the generation Unit Commitment and Dispatch problem was solved as a cost minimisation problem. After deregulation of the electricity sector, the problem must be solved as a profit maximising problem. It is necessary to find feasible market prices. This is difficult, because simple marginal cost based prices do not always cover startup and operation-independent costs, with the result that the generator would choose not to run with such prices. In this paper a market structure is proposed with a central market operator computing the market equilibrium for both energy and reserves, based on generator offers and consumer bids. It is shown that it is possible to find feasible market prices. Using a simple test system, it is shown that demand elasticity can have a profound impact on prices and generator revenues and profits during peaking hours.