Electricity markets: auctions, designs and their analytics
Creators: name: Lange, Sebastian
Publisher: name: RMIT University
Year: 2024
Subjects: classificationCode: 380199
subject: Applied economics not elsewhere classified
classificationCode: 400899
subject: Electrical engineering not elsewhere classified

description: For one moment, imagine a world without electricity: there would be no x-rays to diagnose the sick, no information and telecommunication technology to power economies and societies, not even safe and clean light sources to adequately illuminate the night. Hence, ensuring continuous, safe, reliable and affordable access to electricity is an essential task, albeit an extensive and challenging one. For example, given the lack of adequate storage capabilities, systems are needed to balance electricity generation and consumption at all times. One common system element facilitating such coordination employed by numerous countries is the implementation of an electricity market. However, present-day electricity markets are not flawless. Reports describe inefficiencies as well as the exercise of market power and surveys attest to consumers’ distrust of electricity markets. In addition, contemporary challenges such as climate change and ever-progressing electrification, require electricity markets to accommodate changing market environments. Hence, electricity markets are still under active development and are subject to change. Guiding this change in the best possible way requires both a profound understanding of what electricity market designs are available - including the associated advantages and disadvantages - and a prognosis of how electricity market environments likely develop in the future. This thesis contributes to both matters.

Part one of the presented thesis focuses on auctions employed in electricity markets, contributing to a broadened understanding of available electricity market designs. In particular, two auctions are proposed for utilisation in electricity markets, referred to as the Explorative Auction and the Efficient Auction. The distinct novel property shared by both auctions is the implementation of revealed bids in the context of electricity markets where revealed bidding has received little attention thus far.

The Explorative Auction is developed to gather first insights into utilising revealed bids in an electricity market environment. Despite its early design, the Explorative Auction is shown to possess several noteworthy properties. Among other things, a set of conditions is derived given which truthful bidding constitutes an equilibrium strategy, resulting in non-zero efficient allocation. Furthermore, it is shown that the proposed auction preserves bidders' privacy at least to a limited degree. However, given its early design, the auction exhibits some vectors for market power exercise. These angles of attack are identified and possible patterns emerging among the vectors are classified.

The Efficient Auction addresses the shortcomings of the Explorative Auction and presents an improved design. Most importantly, under the Efficient Auction, truthful bidding constitutes a weakly dominant strategy leading to a non-zero allocation efficient ex-post perfect equilibrium without the need for imposing further conditions. In addition, it is shown that the amount of information preserved depends, among other things, on the constraint set shaped by the underlying electricity grid and ranges from terminating the auction even before excess supply vanishes to complete loss of privacy. Finally, known disadvantages of employing the Vickrey-Clarke-Groves payment rule in an electricity market setting are discussed. It is observed that for the proposed auction the low-/zero-revenue case does not exist, shill-bidding is mitigated and rule complexity is less of an issue when compared to auction applications in other markets.

Arguably, one of the severest pains plaguing the Efficient Auction is the high computational burden associated with allocation, payment and termination calculations. Addressing this drawback, a novel divide-and-conquer strategy is proposed to reduce the computational runtime of calculating discrete non-convex optimal power flow. At the strategy’s heart is the division of the power grid into smaller sub-grids to break the curse of dimensionality. The analysis of the divide-and-conquer strategy shows that the proposed power grid division and discrete power flow calculation based on sub-grids are feasible. Furthermore, conditions are derived describing under which circumstances a division into sub-grids reduces the computational burden.

Part two of the presented thesis focuses on assessing future changes facing the electricity grid and, in turn, electricity markets. In particular, electricity demand changes as a result of the widespread adaptation of workplace electric vehicle (EV) charging in the presence of residential photovoltaic (PV) are investigated and presented. To determine such correlations a generic model to describe EV movement and charging behaviour is proposed capable of capturing an environment comprising workplace, residential, and public EV charging. The proposed generic model implements a novel risk-averse charging strategy. This charging strategy optimises the utilisation of workplace chargers and excess PV generation while accounting for the intermittent nature of supply from PV assets. To allow for numerical simulations, the generic model implementing the proposed charging strategy is translated into an agent-based model which is fed with real-world data representing the metropolitan Melbourne area in Australia. The simulation results illustrate the impact of workplace EV charging on EV owners. Most notably, the risk-averse charging strategy is shown to increase the utilisation of excess PV generation and to exhibit positive externalities benefiting EV owners not owning residential PV. Ultimately, the simulation results showcase the spatial and temporal impact of widespread EV charging on electricity demand contrasting the cases of workplace charging being available or not.