Comparison of LMPs´ Sensitivity Under Payment Cost Minimization and Offer Cost Minimization Mechanisms

There are different choices for auction and settlement mechanisms in electricity markets; however, selecting the appropriate mechanisms is too hard. Traditionally, the offer cost minimization (OCM) mechanism that minimizes the total offer cost is used as the clearing mechanism, and payments are calculated based on locational marginal prices (LMPs). Under this setup, the clearing and settlement mechanisms are inconsistent, since the minimized cost is different from the total payment cost. Some recent studies have proposed the payment cost minimization (PCM) mechanism. However, the discussion is still open, and different aspects of these mechanisms are yet needed to be analyzed. This paper focuses on the LMPs´ behavior under these two mechanisms and particularly takes the system uncertainties into account to compare the sensitivity of the LMPs under these two mechanisms. The system uncertainties are reflected in uncertainties in different system variables through system physical and economical relationships. The proposed algorithm linearizes the market clearing equations and uses Gram-Charlier type-A series to find the probability density function of marginal prices under PCM and OCM mechanisms. Then, some measures are defined to compare the LMPs´ sensitivity under these two mechanisms. The proposed method is applied to the IEEE Reliability Test System, and the results are discussed.