Assessing pool-based pricing mechanisms in competitive electricity markets

This paper presents four alternative fixed cost allocation schemes to determine the spot prices of electricity in a centralised market with a complex bidding structure. Payment adequacy constraints are introduced in the pricing mechanisms to ensure that all generators recover their bidding prices. The numeric results show that by adopting different fixed cost allocation schemes, the total electricity prices and hence the customers' payments can vary significantly. Furthermore, different schemes yield significant changes in the generators' profitability. The issues discussed in this paper are illustrated using 10-, 26- and 110-unit systems.