Date Published: June 2016

Authors: Bethany Frew, Giulia Gallo, Gregory Brinkman, Michael Milligan, Kara Clark, Aaron Bloom

Revenue insufficiency problem is becoming more worthy of attention as variable renewable generators with near-zero marginal cost are implemented increasingly. Estimating the extent of revenue insufficiency requires representing both power system operation and market participants behaviors.

This paper introduces a production cost model that represented a simplified version of ERCOT energy-only market for 2012 to 2014. This model evaluates how different market structures affect net revenues in the ERCOT-like system. The paper tests different sets of market participant strategic bidding behaviors by means of different sets of markups and finds the markups can help generators increase their overall net revenues. Results also confirm that conventional variable-cost-based production cost simulations do not capture prices accurately.

Overall, this paper intends to raise the attention for improved behavioral models of electricity markets to more accurately study market design issues that could arise in systems with high penetrations of renewable generation.
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