Analysis of Convex Hull Pricing in Electricity Markets

With an increasing number of distributed renewable resources integrated into power grid, the nature of non-convexity in the electricity market is getting more and more notable. Since the traditional locational marginal pricing scheme fails to reflect the fixed cost of resources, the market operator has been forced to provide uplift payments to loss making or loss-opportunity generators. This paper seeks to research an extended locational pricing scheme to reduce the uplift cost. Firstly, by overviewing the market clearing processes under LMP scheme, the demerits of LMP method are discussed when the incentive compatibility cannot be satisfied. After analyzing the reasons for uplift cost, the model of convex hull pricing is established. Finally numerical results of test cases prove the correctness of the assertion that the extended locational pricing scheme can actually reduce the uplift payments, which is of great significant for the transparency of electricity market.