Abstract-Being widely used in many deregulated wholesale electricity markets, the locational marginal pricing (LMP) mechanism is known to achieve social optimality in a competitive market. When profit-maximizing generators act strategically to manipulate prices; however, LMP may lead to high loss of economic efficiency. In this paper, we apply the Vickrey-Clarke-Groves (VCG) mechanism to wholesale electricity markets. We show that the VCG mechanism minimizes the total cost at a truth-telling dominant strategy equilibrium. We establish an important comparative result that the VCG mechanism always results in higher per-unit electricity prices than the LMP mechanism under any given set of reported supply curves. Numerical results show that the difference between the per-unit prices resulting from the two mechanisms is negligibly small (about 4%) in the IEEE 14-bus and 30-bus test systems. Finally, we apply the VCG mechanism to a day-ahead setting with start-up cost (of conventional generators) and intermittent renewable generation. We show that the VCG mechanism induces the truth-telling behavior of conventional generators in dominant strategies and yields each conventional generator a non-negative expected profit. Index Terms-Locational marginal pricing (LMP), power networks, Vickrey-Clarke-Groves (VCG) mechanism, wholesale electricity markets.
Xu and Low REF presented the Vickrey-Clarke-Groves mechanism for wholesale electricity markets and its result demonstrated that the proposed mechanism can achieve a good performance under higher electricity prices.
An Efficient and Incentive Compatible Mechanism for Wholesale Electricity Markets
IEEE Transactions on Smart Grid
IEEE Transactions on Smart Grid
Economics Computer Science