Volatility of unit commitment in competitive electricity markets

We examine the effects of competition and decentralized ownership on resource scheduling. We show that centralized scheduling of multi-owned resources under imperfect information may face difficulties that do not arise when resources are centrally owned. We perform a simulation case study using a Lagrangian relaxation-based unit commitment algorithm modified to simulate proposed second-price pool auction procedures. This algorithm is based on the Hydro-Thermal Optimization (HTO) program used in short-term resource scheduling at PG&E. We demonstrate both the volatility of simulation outcomes for resources not base loaded, and the especially negative consequences of volatility for marginal resources (i.e., resources that frequently determine system marginal costs). Specifically, we show that variations in near optimal unit commitments that have negligible effect on total costs could have significant impact on the profitability of individual resources. These results raise serious questions regarding the feasibility of proper mechanisms to oversee the efficiency and equity of a mandatory centrally dispatched pool.