Dual Pricing to Prioritize Renewable Energy and Consumer Preferences in Electricity Markets

Abstract

Electricity markets currently fail to incorporate preferences of buyers, treating polluting and renewable energy sources as having equal social benefit under a system of uniform clearing prices. Meanwhile, renewable energy is prone to curtailment due to transmission constraints, forcing grid operators to reduce or shut down renewable energy production despite its availability and need. This paper proposes a ``dual pricing mechanism" which allows buyers to bid both their willingness to pay for electricity, and additionally, their preference for green energy. Designed for use in deregulated electricity markets, this mechanism prioritizes the dispatch of more renewable energy sources according to consumer preferences. Traditional uniform clearing prices, which treat all energy sources equally, do not reflect the growing share of green energy in the power grid and the environmental values of consumers. By allowing load-serving entities to bid their willingness to pay for renewable energy directly into the clearing market, our proposed framework generates distinct pricing signals for green and ``black" electricity.

Figures (15)

• Figure 1: Congested power system. Due to impedance ratios and line flow limitations, the green generator can only provide 20 MW to the load (with no black) in Scenario 1, while the black generator can provide 100 MW to the load (with no green) in Scenario 2. Every unit of green, therefore, can be replaced with 5 units of black. If the load values power highly enough, the market surplus will be maximized by fully curtailing the zero-marginal-cost renewables and maximizing black generation.
• Figure 2: The multi-part bid of a single load is depicted. In this bid, the load values the first unit of energy at $10/MWh, the second unit of energy at $4/MWh, and so on. The $\alpha=2$ value bid by this load indicates that the load is willing to pay an additional $2/MWh, at any load interval, for energy which comes from a green source. Constant $\alpha$ values across a given multi-part bid are essential for preserving problem convexity.
• Figure 3: The power flows in a 3-node network containing a renewable generator (G), a black (B) generation source, and a load (L).
• Figure 4: The bids of the generators and the loads
• Figure 5: The power flows in a 3-node network using the dual pricing dispatch framework

Theorems & Definitions (1)

• Remark 1