Supply–demand price decoupling in European-type day-ahead electricity markets
In this paper, we consider the possibility of supply–demand price decoupling in European-type day-ahead electricity markets, considering also the possibility of the supply price exceeding the demand price for some periods. Using a simple market model and an illustrative example, we show that this ap...
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| Format: | Article |
| Language: | English |
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Elsevier
2025-08-01
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| Series: | International Journal of Electrical Power & Energy Systems |
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| Online Access: | http://www.sciencedirect.com/science/article/pii/S0142061525003369 |
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| author | Anita Varga Botond Feczkó Marianna E.-Nagy Dávid Csercsik |
| author_facet | Anita Varga Botond Feczkó Marianna E.-Nagy Dávid Csercsik |
| author_sort | Anita Varga |
| collection | DOAJ |
| description | In this paper, we consider the possibility of supply–demand price decoupling in European-type day-ahead electricity markets, considering also the possibility of the supply price exceeding the demand price for some periods. Using a simple market model and an illustrative example, we show that this approach can resolve the paradoxical rejection of block orders and thus potentially increase the total social welfare and surplus of bidders. However, it has additional implications, which must be considered in a potential application. The first is the non-uniqueness of the decoupled market-clearing prices, while the second is that price decoupling affects the relation between the sum of individual bid surpluses and the total social welfare, as these values may no longer be equal, and the approach may imply a nonzero income for the auctioneer. To tackle the issue of non-uniqueness of market-clearing prices, we propose an iterative three-step clearing method. In the second part of the paper, we consider realistic-sized examples, analyze how the proposed approach affects the market outcome. We show that the proposed method reduces the number of paradoxically rejected block bids by 34%–42% and slightly increases the total welfare. In addition, we define a measure (opportunity cost of paradox rejection) to characterize the level of paradox rejection in a clearing solution. We show that the proposed price decoupling-based clearing method may significantly (34%–44%) decrease the value of this measure compared to the conventional clearing approach. We also study the computational demand of the proposed method. |
| format | Article |
| id | doaj-art-7cde7a28e4f847469c0de849a37d1d94 |
| institution | Kabale University |
| issn | 0142-0615 |
| language | English |
| publishDate | 2025-08-01 |
| publisher | Elsevier |
| record_format | Article |
| series | International Journal of Electrical Power & Energy Systems |
| spelling | doaj-art-7cde7a28e4f847469c0de849a37d1d942025-08-20T03:47:20ZengElsevierInternational Journal of Electrical Power & Energy Systems0142-06152025-08-0116911078810.1016/j.ijepes.2025.110788Supply–demand price decoupling in European-type day-ahead electricity marketsAnita Varga0Botond Feczkó1Marianna E.-Nagy2Dávid Csercsik3Corvinus Center for Operations Research, Corvinus Institute of Advanced Studies, Corvinus University of Budapest, Közraktár utca 4-6., H-1093, Budapest, Hungary; Department of Mathematics, North Carolina State University, 2108 SAS Hall, 2311 Stinson Drive, Raleigh, NC 27695, USAPázmány Péter Catholic University, Faculty of Information Technology and Bionics, Práter u. 50/A 1083 Budapest, HungaryCorvinus Center for Operations Research, Corvinus Institute of Advanced Studies, Corvinus University of Budapest, Közraktár utca 4-6., H-1093, Budapest, HungaryHUN-REN Centre for Economic and Regional Studies, Institute of Economics, Tóth Kálmán u. 4., H-1097 Budapest, Hungary; Pázmány Péter Catholic University, Faculty of Information Technology and Bionics, Práter u. 50/A 1083 Budapest, Hungary; Corresponding author at: HUN-REN Centre for Economic and Regional Studies, Institute of Economics, Tóth Kálmán u. 4., H-1097 Budapest, Hungary.In this paper, we consider the possibility of supply–demand price decoupling in European-type day-ahead electricity markets, considering also the possibility of the supply price exceeding the demand price for some periods. Using a simple market model and an illustrative example, we show that this approach can resolve the paradoxical rejection of block orders and thus potentially increase the total social welfare and surplus of bidders. However, it has additional implications, which must be considered in a potential application. The first is the non-uniqueness of the decoupled market-clearing prices, while the second is that price decoupling affects the relation between the sum of individual bid surpluses and the total social welfare, as these values may no longer be equal, and the approach may imply a nonzero income for the auctioneer. To tackle the issue of non-uniqueness of market-clearing prices, we propose an iterative three-step clearing method. In the second part of the paper, we consider realistic-sized examples, analyze how the proposed approach affects the market outcome. We show that the proposed method reduces the number of paradoxically rejected block bids by 34%–42% and slightly increases the total welfare. In addition, we define a measure (opportunity cost of paradox rejection) to characterize the level of paradox rejection in a clearing solution. We show that the proposed price decoupling-based clearing method may significantly (34%–44%) decrease the value of this measure compared to the conventional clearing approach. We also study the computational demand of the proposed method.http://www.sciencedirect.com/science/article/pii/S0142061525003369OR in energyDay-ahead electricity marketsNon-convexitiesMarket designParadox rejectionClearing approach |
| spellingShingle | Anita Varga Botond Feczkó Marianna E.-Nagy Dávid Csercsik Supply–demand price decoupling in European-type day-ahead electricity markets International Journal of Electrical Power & Energy Systems OR in energy Day-ahead electricity markets Non-convexities Market design Paradox rejection Clearing approach |
| title | Supply–demand price decoupling in European-type day-ahead electricity markets |
| title_full | Supply–demand price decoupling in European-type day-ahead electricity markets |
| title_fullStr | Supply–demand price decoupling in European-type day-ahead electricity markets |
| title_full_unstemmed | Supply–demand price decoupling in European-type day-ahead electricity markets |
| title_short | Supply–demand price decoupling in European-type day-ahead electricity markets |
| title_sort | supply demand price decoupling in european type day ahead electricity markets |
| topic | OR in energy Day-ahead electricity markets Non-convexities Market design Paradox rejection Clearing approach |
| url | http://www.sciencedirect.com/science/article/pii/S0142061525003369 |
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