A double auction model for competitive generators and large consumers considering power transmission cost

Abstract The pricing mechanism in a deregulated electricity market is consistently a critical issue to improve market operations. Along with the development of electricity market, large consumers may purchase electric power from generators directly. In this paper, with an effort to introduce McAfee’s second-price sealed auction mechanism into multi-unit electric power transaction between competitive generators and large consumers, an auction model is developed to decide electric power price between competitive generators and large consumers based on the inclusion of the transaction cost and power transmission cost in a wholesale electricity market. After the description of pricing rules in the deregulated power market, auction rules and transaction rules are discussed. In particular, auction rules can increase the probability that generators providing a large number of supply and large consumers with high demand win the auction. On the other hand, transaction rules can optimize the whole transmission cost and transaction cost under market equilibrium, and the whole system is dispatched to maximize social welfare. A numerical example with eight suppliers and eight large consumers is provided to illustrate the essential features of this method.

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