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					An Introduction to Electricity Auctions
    Using PowerWeb Experiments


                   William Schulze
      Department of Applied Economics and Management
                      Cornell University
                     wds3@cornell.edu




   Power System Engineering Research Center
                                                       1
                  OUTLINE



• Part I
  • Testing Different Types of Auction Using PowerWeb
• Part II
  • Testing the Soft-Cap Auction Used in California




                                                        2
                        PART I


       • Testing Different Types of Auction
           • Uniform Price Auction
           • Discriminative Auction


Source:
   Testing the Performance of Uniform Price and Discriminative Auctions
                                       by
Timothy D. Mount, William D. Schulze, Robert J. Thomas, and Ray D. Zimmerman




                                                                         3
PowerWeb Network




                   4
PowerWeb: Offer Submission Page




                                  5
PowerWeb: Auction Results




                            6
       Uniform Price Auction

• Each supplier submits multiple offers to sell electricity
  (different quantity/price combinations) into a central auction.

• All offers submitted into the auction are ranked from lowest
  price to highest price.

• Select the lowest priced offers until supply equals demand.

• The last (highest priced) accepted offer sets the price for all
  accepted offers.

• Typical offer (supply) curve takes the form of a “hockey stick”.

                                                                    7
Offers Submitted by Six Firms into a
       Uniform Price Auction




                                       8
Market Prices for a Uniform Price
Auction with Price Inelastic Load
  (Average Price $76.71/MWh)




                                    9
       Discriminative Auction


• Each supplier submits multiple offers to sell electricity
  (different quantity/price combinations) into a central auction.

• All offers submitted into the auction are ranked from lowest
  price to highest price.

• Select the lowest priced offers until supply equals demand.

• Each accepted offer is paid the offered price.

• Typical offer (supply) curve is relatively flat (price elastic).



                                                                     10
   What Happens if Firms are Paid
Their Offers (Discriminative Auction)?




                      QuickTime™ and a
                    Graphics deco mpressor
                are neede d to see this picture.


                         QuickTime™ and a
                       Graphics deco mpressor
                   are neede d to see this picture.




                                                      11
Market Prices for a Discriminative Price
  Auction with Price Inelastic Load
     (Average Price $83.02/MWh)




                                           12
              Part I: Conclusions

•   Prices in the Uniform Price Auction are volatile and substantially above competitive
    levels.

•   Prices in the Discriminative Auction are much less volatile but even higher than the
    average prices in the uniform price auction.

•   Prices in the Uniform Price Auction are lower with price-responsive load because
    suppliers speculate (submit high offers) with only a few blocks of capacity and the offer
    curve is shaped like a hockey stick.

•   Prices in the Discriminative Price Auction are expected to be relatively insensitive to
    price-responsive load because the offer curve is flat (highly price elastic) and suppliers
    speculate with most blocks of capacity.

•   Making load respond to price using a uniform price auction is a more effective way to
    mitigate high prices than changing to a discriminative auction.


                                                                                           13
                           PART II



           Testing the Soft-Cap Auction
                Used in California

Source:
       The California Electricity Crisis: An Experimental Investigation
                of the Effects of Changing the Market Rules
                                       by
Timothy D. Mount, Robert J. Thomas, Christian A. Vossler and Ray D. Zimmerman



                                                                         14
What Happened in California during
       the Winter of 2001?

    $/ MWh
      800
                                                              M
                                             P _C a p: $ 75 0 / Wh


     700


     600

                                                                                      M
                                                                     P _C a p: $ 50 0 / Wh
     500


     400


     300
                                   M
                  P _C a p: $ 25 0 / Wh
                                                                                         M
                                                                        P _C a p: $ 25 0 / Wh


     200
                                                                                                                 M
                                                                                                S _C a p: $ 15 0 / Wh



     100                                                                                              P _C a p: $ 92 .87 /M Wh




       0
       1/ 1/99 4/ 1/99 7/ 1/99 10/ 1/ 99 1/ 1/00 4/ 1/00 7/ 1/00 10/ 1/ 00 1/ 1/01 4/ 1/01 7/ 1/01 10/ 1/ 01



   Figure 1: Spot Prices at Southern California and the Price Caps
         Blue CAISO Hard Cap
         Red CAISO Soft Cap
         Black WECC Hard Cap
   (Source, Energy Market Report and the CAISO)
                                                                                                                                 15
               Soft-Cap Auction

•   Each supplier submits multiple offers to sell electricity (different
    quantity/price combinations) into a central auction.

•   All offers submitted into the auction are ranked from lowest price to
    highest price.

•   Select the lowest priced offers until supply equals demand.

•   All offers at or below the soft-cap are paid the last accepted offer
    (Uniform Price Auction).

•   Accepted offers above the soft-cap are paid the actual offer
    (Discriminative Auction).

•   Typical offer (supply) curve is ?????

                                                                            16
Typical Offer (Supply) Curve
  Discriminative Auction




                               17
      Average Price - Students
    Soft-Cap Auction - Inelastic Load

                            Expe riment 2: Ave rage Marke t Price pe r Pe riod, Student Subjects,
                                    Soft-Cap Auction without Price -Responsive Load.

                      100




                       90




                       80
      Price ($/MWh)




                       70




                       60




                       50




                       40
                            0     5       10     15      20     25      30     35      40     45    50

                                                              Period


Dotted line is the “competitive” price (offers equal the true cost)

                                                                                                         18
         Part II: Conclusions

•   Prices in the Uniform Price Auctions (Tests 1 & 4)
    drop significantly when generation costs decrease.

•   Prices in the Soft-Cap Auctions (Tests 2 & 3) do NOT
    drop significantly when generation costs decrease.

•   Prices in the Uniform Price Auction (Tests 4 v 1) are
    MORE sensitive to lower generation costs with price-
    responsive load.



                                                         19
Why Use PowerWeb to Test Markets?

• Market structures for electricity auctions are too complicated
  to derive analytical results.
• PowerWeb tests are inexpensive compared to experimenting
  directly on the public.
• Paying participants in market tests on the basis of their
  performance duplicates market behavior effectively.
• The effects of specific market characteristics can be isolated
  and tested.
• PowerWeb supports a full AC network, so that the market
  implications of congestion and ancillary services -- as well as
  real power -- can be studied.
• TEST NOW or PAY LATER

                                                                    20

				
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posted:5/3/2012
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