Strategic bidding via the interplay of minimum income condition orders in day-ahead power exchanges

Csercsik, Dávid (2021) Strategic bidding via the interplay of minimum income condition orders in day-ahead power exchanges. ENERGY ECONOMICS, 95. ISSN 0140-9883

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Abstract

In this paper, we study the so-called minimum income condition order, which is used in some day-ahead electricity power exchanges to represent the production-related costs of generating units. This order belongs to the family of complex orders, which introduce non-convexities in the market clearing problem. We demonstrate via simple numerical examples that if more of such bids are present in the market, their interplay may open the possibility of strategic bidding. More precisely, we show that by the manipulation of bid parameters, a strategic player may increase its own profit and potentially induce the deactivation of an other minimum income condition order, which would be accepted under truthful bidding. Furthermore, we show that if we modify the objective function used in the market clearing according to principles suggested in the literature, it is possible to prevent the possibility of such strategic bidding, but the modification raises other issues.

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