Pricing and market clearing mechanism based on consumer payment and generation bid cost minimization

Pricing and market clearing mechanism is one of the most important issues in electric power markets design. However, there is inconsistency between the pricing objectives and the approaches for clearing the market in the current practice. This issue is addressed in this paper and a new optimization based pricing and market clearing mechanism suitable for the day-ahead forward market is presented. The new mechanism is essentially based on the consumer payment minimization. Since solving this market clearing problem is an NP-hard problem due to the integrated complexity of the short-term generation scheduling and the consumer payment minimization objective, the solution methodology developed in the paper is to divide the market clearing calculation into two phases: the optimization problem based on the new mechanism is solved effectively by Lagrangian relaxation method in the first phase and simplex method in the second phase. Numerical results of a typical 10-unit system show the effectiveness of the new mechanism.