The must-run dispatch auction in an electricity market

In a nodal spot market for electricity, there may be circumstances in which generators may wish to offer energy at negative prices, e.g. to avoid being shut down for a short period. Such behaviour can create some severe computational difficulties for the system dispatcher. The 'must-run dispatch auction' is a system used to handle such cases in New Zealand; we construct an equilibrium model for generators' behaviour in the auction under stochastic demands. An interesting feature of the auction is that its outcome may be economically suboptimal even under very idealised assumptions of perfect competition. (C) 2002 Elsevier Science B.V. All rights reserved.