TELKOM
NIKA
, Vol. 11, No. 4, April 2013, pp. 1967
~19
7
2
ISSN: 2302-4
046
1967
Re
cei
v
ed
De
cem
ber 2
9
, 2012; Re
vi
sed
Febr
uary 17,
2013; Accept
ed March 1, 2
013
Application of Designing Economic Mechanisms to
Power Market - Part 2 Characteristic Analysis of
Generation Side Power Market
ZHU Yon
gga
ng
1,2
, XIE Qing
y
a
ng
1
, YING
Liming*
1
1
School of Elec
trical Eng
i
ne
eri
ng, W
uhan U
n
i
v
ersit
y
, W
u
h
a
n
4300
72, Ch
ina
2
Hubei El
ectric
al Po
w
e
r Com
pan
y, W
uha
n 4
300
77, Hu
bei
Provinc
e
, Chin
a
*Corres
p
o
ndi
n
g
author, e-ma
i
l
: LMYing
@
w
h
u
.edu.cn
A
b
st
r
a
ct
T
he ince
ntive
p
o
w
e
r mark
et may lea
d
to a h
i
gh inf
o
rma
tio
n
cost if it is not informatio
nal
ly
efficient.
T
he pa
per a
n
a
l
y
z
e
s
the c
har
acteristic of th
e ge
ner
ati
on s
i
de p
o
w
e
r mar
k
et mec
h
a
n
is
m
mo
del
bas
e
d
on
the d
e
sig
n
i
ng
econ
o
m
ic
mec
han
is
ms the
o
r
y
by
th
e thre
e
GENCOs (Ge
nerati
on
Co
mp
ani
es) cas
e
. T
h
e
result of a
n
a
l
y
s
is is that th
e
me
c
h
a
n
is
m
mode
l has
four
ma
in fe
atures
: the
infor
m
atio
n
a
lly efficient
w
h
ich
me
ans that th
e mec
h
a
n
is
m meets req
u
ir
ements of
the
observati
ona
l
efficiency, the communic
a
ti
on
efficiency a
n
d
the low
complexity of co
mputin
g; t
he in
centive co
mpa
t
ibility w
h
ich i
ndic
a
tes that the
resourc
e
al
loc
a
tion
of the
pow
er
market
is Pareto
Optimality
and
the soci
al
be
nefit ach
i
ev
es
the
max
i
mi
z
a
ti
on
w
hen GENCOs also achi
eve
profit maxi
mi
za
tion; the dec
e
n
trali
z
e
d
dec
isi
on w
h
ich refer
s
to
preservi
ng th
e
privacy
infor
m
ati
on
of GENCOs; enco
u
r
age
ment
of co
mp
etitio
n w
h
ic
h sug
gests th
at the
m
e
chanism
encourages GENCOs to co
mp
ete w
i
th each oth
e
r hea
lthily.
Ke
y
w
ords
: po
w
e
r market, inf
o
rmatio
nal
ly efficient, inc
entiv
e compati
b
il
ity
Copyrig
h
t
©
2013
Univer
sitas Ahmad
Dahlan. All rights res
e
rv
ed.
1. Introduc
tion
The
re
sea
r
ch
on the
po
we
r ma
rket me
chani
sms de
si
gn is al
ways
a hot
spot a
r
o
und the
worl
d. With the develop
ment of rela
ted t
heorie
s and the accumul
a
tion o
f
power m
a
rkets
pra
c
tical
exp
e
rien
ce, the
trend
of de
sig
n
ing a
u
ctio
n
mech
ani
sm
s
has
ch
ang
ed
obviou
s
ly. As
other
asymm
e
tric i
n
form
ation sy
st
em
s, the p
r
ivate inf
o
rmatio
n di
st
ributes i
n
ea
ch pa
rticipa
n
t
of
the po
we
r m
a
rket. In tra
d
itional u
n
ifo
r
m
clea
ring
price m
e
ch
a
n
ism
s
, GE
NCO
s
(Gen
eration
Comp
anie
s
) coul
d bid
stra
tegically
an
d
hoard capa
bil
i
ties to hold
market po
we
r for ea
rning
more
profits, which
leads to the
large
pri
c
e in
cre
a
ses
[1
-2]
.
After that, r
e
se
arche
r
s b
egin to see
k
for
other a
u
ctio
n
mech
ani
sm
s. The FE
RC (F
ede
ral
Energy Reg
u
latory
Com
m
issi
on
)
re
q
u
ire
s
relevant aut
h
o
rities to
stud
y the alternati
v
e sch
eme of
the uniform
clearin
g pri
c
e
mech
ani
sm, for
example, a
d
opting the
pa
y-as-bid
me
chani
sm by
which
re
se
archers h
ope
to
red
u
ce
strat
egic
behavio
rs fro
m
GENCOs [
3
]. But with the dee
peni
ng
of rese
arch
and practi
ce,
more an
d m
o
re
schola
r
s fin
d
that the pa
y-as-bid m
e
chani
sm is
n
o
t the funda
mental soluti
on to stop
pi
ng
strategi
c ga
m
e
action
s fro
m
GENCOs [
4
, 5].
Re
cent years, resea
r
che
r
s introdu
ce
the
concep
t of incentive comp
atibili
ty which
belon
gs t
o
th
e me
cha
n
ism
de
sign th
eo
ry to the p
o
wer m
a
rket d
e
s
ign.
We
call
this
kin
d
of t
h
e
market me
ch
anism
as the
incentive p
o
w
er m
a
rket
whi
c
h can fu
ndame
n
tally redu
ce GE
NCOs
market po
wer; meanwhil
e
, the market
efficien
cy is uni
nfluen
ced [6-13].
But, there i
s
a problem t
hat if the in
centiv
e po
wer market did
n
’
t
con
s
ide
r
a
b
out the
inform
ationall
y
efficie
n
t
, the inform
ation
co
st of run
n
i
ng t
he
me
ch
anism wo
uld increa
se sha
r
ply
[14]. In dece
n
tralized m
e
chani
sms, the
market re
so
urce allo
catio
n
is d
e
ci
ded
by outcom
e
s of
every ag
ent’s de
cisi
on
whi
c
h i
s
m
ade
throu
gh va
st i
n
formatio
n e
x
chan
ge
s. Accordi
ng to
th
e
informatio
n e
c
on
omics th
e
o
ry, age
nts t
r
an
sa
ct wi
th
each othe
r b
y
exchan
ging
informatio
n,
a
market is
a
netwo
rk
de
livering info
rmation
with
whi
c
h a
g
e
n
ts are inte
rco
nne
cted.
The
inform
ationall
y
efficie
n
t
is
relevant
clo
s
e with the
informatio
n cost
whi
c
h i
s
the
most imp
o
rt
ant
part of tra
n
saction
co
st i
n
po
wer
market [15
]. Co
mpared
with
the tradition
al po
wer
ma
rket
mech
ani
sm, the ince
ntive powe
r
ma
rket need
s mo
re informatio
n excha
nge
s to achieve t
he
incentive compatibility du
ring operating the market
. So the in
formation
cost
of the incentive
Evaluation Warning : The document was created with Spire.PDF for Python.
ISSN: 23
02-4
046
TELKOM
NIKA
Vol. 11, No. 4, April 2013 : 1967 –1
972
1968
power ma
rket without the
inform
ationall
y
efficient
will
be increa
sed
.
Thus, it sho
u
ld be taken i
n
to
con
s
id
eratio
n
that ho
w to
d
e
sig
n
an
in
ce
ntive power
market me
ch
anism
with
th
e
inform
ationally
efficient
. Considering the f
easi
b
ility of
operating power m
a
rket
s, it is
very
signifi
cant to study
on
the
inform
ationall
y
efficie
n
t
and ince
ntive compatibl
e
powe
r
ma
rket mechani
sm for prom
oting
the further m
a
rketizatio
n p
r
og
re
ss of po
wer m
a
rkets.
2. A Case
of Ge
nera
ti
on Side Po
w
e
r
Mar
k
e
t
Compe
t
itiv
e
Mecha
n
ism Bas
e
d on
the
Designing E
c
onomic Me
chanisms Th
eor
y
In the pa
pe
r
“Appli
c
ation
of De
signi
ng
Econo
mic
M
e
ch
ani
sms to
Powe
r M
a
rket Part 1
Gene
ration S
i
de Power M
a
rket De
sig
n
”, base
d
on th
e de
signin
g
e
c
on
omic
mechani
sms th
eo
ry,
we have
stu
d
ied a ne
w
approa
ch to
desi
gning
th
e ince
ntive power ma
rke
t. The incent
ive
compatible,
inform
ationall
y
efficient
an
d decentrali
zed gen
eratio
n
si
de po
we
r market com
p
etitive
mech
ani
sm model
has b
een con
s
tru
c
ted.
12
3
1
2
3
[
,
(
,
),
(
,
),
(
,
),
(
)
,
(
),
(
)
]
M
g
m
a
g
m
b
g
m
c
h
mh
mh
m
(1)
Whe
r
e,
11
1
2
3
2
1
2
3
(,
)
(
2
)
3
(
)
L
L
g
m
a
a
m
mm
P
a
m
m
mP
,
11
2
3
()
(
2
)
/
3
L
h
m
m
mmP
,
21
2
1
3
2
1
2
3
(,
)
(
2
)
3
(
)
L
L
g
m
b
b
m
mm
P
b
mm
m
P
,
21
2
3
()
(
2
)
/
3
L
hm
m
m
m
P
,
31
3
1
2
2
1
2
3
(,
)
(
2
)
3
(
)
L
L
g
m
c
c
m
mm
P
c
mm
m
P
,
31
3
2
()
(
)
/
3
L
hm
m
m
m
P
.
1
(,
)
g
ma
,
2
(,
)
g
mb
and
3
(,
)
g
mc
corre
s
pond to equili
brium me
ssa
ge function
s
of GENCO
1, GENCO 2
and GENCO
3. Outcome f
unctio
n
s
1
()
hm
,
2
()
hm
and
3
()
hm
correspon
d to
1
P
the
output of
GE
NCO 1,
3
P
the
output of
GE
NCO 3
an
d
p
the u
n
iform
cl
earin
g p
r
i
c
e.
Assu
me th
at
the req
u
irem
ent of the ne
xt period load
is 100M
W,
the gen
eratio
n co
st is give
n by the Equation
(2) a
nd the re
levant data of three GENCOs a
r
e listed i
n
Table 1.
2
()
ii
i
i
i
i
i
CP
P
P
(2)
Table 1. The
Data of Three
GENCOs
GE
NC
O
i
i
i
i
Minimum
Output (MW)
Max
i
mum Output
(MW)
1 22
10.125
0.7865
15
100
2 12
9.588
0.5195
10
80
3 46
15.897
0.949
20
150
The
paramet
er
sp
ace of
G
E
NCO
s is obt
ained
through
ma
king
pa
ra
meter t
r
an
sfo
r
mation
based
on th
e alg
o
rithm
i
n
Part
1. Th
e pa
ram
e
ter sp
ace
(,
,
)
ab
c
is shown in
Ta
b
l
e 2.
Be
c
a
us
e th
e p
o
w
e
r mark
e
t
is
a
n
asymme
tr
ic
i
n
formatio
n
system (d
ecentralize
d
sy
ste
m
),
GENCO
i
only
kno
w
s its pa
rameters
i
a
a
nd
i
b
which bel
on
g to GE
NCO
i
’s p
r
ivate info
rmation,
and the ma
rket operatio
n d
epartm
ent do
esn’t kno
w
the para
m
eter
spa
c
e.
Table 2. The
Paramete
r Space of Thre
e GENCO
s
GE
NC
O 1
GE
NC
O 2
GE
NC
O 3
1
a
2
a
1
b
2
b
1
c
2
c
1.573
10.125
1.039
9.588
1.898
15.897
The m
a
rket o
peratio
n d
e
p
a
rtment i
s
i
n
cha
r
ge
of
co
nstru
c
ting
out
come
fun
c
tio
n
s
()
hm
and eq
uilibri
um messa
g
e
function
s
(,
)
i
gm
by the algorithm of the desi
gning e
c
onomi
c
mech
ani
sm
s theory.
The
(,
)
i
gm
will be
sent
to GENCO
i
only. Then,
GENCO
i
use
s
its
para
m
eters
i
a
and
i
b
to figure
out the equilibrium me
ssa
ge
function gi
ven by the Equation (3),
(4) o
r
(5
) whi
c
h is
waiting f
o
r bein
g
v
e
rifi
ed.
Evaluation Warning : The document was created with Spire.PDF for Python.
TELKOM
NIKA
ISSN:
2302-4
046
Applicatio
n of Desi
gnin
g
Econ
om
ic Mechani
sm
s to Powe
r Market (ZHU Yo
ngg
a
ng)
1969
11
2
3
(
,
)
4
.14
6
0
.
5
7
3
0
.573
87
.6
75
gm
a
m
m
m
(3)
21
2
3
(
,
)
0
.03
9
3.078
0.039
32.664
gm
b
m
m
m
(4)
31
2
3
(
,
)
0
.8
98
0
.
8
9
8
4
.796
1
37.491
gm
c
m
m
m
(5)
The n
e
xt ste
p
is th
e
ve
rification
scen
ario
process. T
he op
eration
flow of the
ge
neratio
n
side p
o
wer m
a
rket based o
n
the desi
gni
ng economi
c
mech
ani
sm
s theory is
sho
w
n in Figu
re
1.
12
3
(,
,
)
mm
m
m
(,
)
i
gm
(,
)
0
?
i
gm
()
i
hm
Figure 1. The
Operatio
n Fl
ow of
the Ge
neratio
n Side
Power Ma
rket
The ma
rket operation d
e
partme
n
t se
nds
a set messag
e
12
3
(,
,
)
mm
m
m
which i
s
obtaine
d by some
ce
rtain rule
s o
r
algorithm
s to
each GENCO.
The GENCO
i
plugs
12
3
(,
,
)
mm
m
m
into its
equilibrium
message function
(,
)
i
gm
to cal
c
ul
ate whethe
r
or n
o
t
(,
)
0
i
gm
. The result should b
e
rep
o
r
ted ba
ck to t
he market op
eration d
epa
rtment.
If
(,
)
0
i
gm
is true, G
E
NCO
i
i
s
in
the e
quilib
riu
m
condition
of
ii
M
RM
C
an
d
can
achi
eve the p
r
ofits maximi
zation i
n
the
curre
n
t ma
rket resou
r
ce a
llocatio
n
whi
c
h is dete
r
min
ed
by the message set. We assume that every GENCO is
rational, so they are
willing to report
real
results of cal
c
ulating their e
quilib
ri
um me
ssage fun
c
tio
n
s. If any GENCO
i
’s
(,
)
0
i
gm
is
fals
e,
the market
o
peratio
n de
p
a
rtment h
a
s to sel
e
ct a
ne
w me
ssag
e set and
start
a ne
w roun
d
of
verifi
cation scenari
o
.
Rep
eat the
verific
a
tion s
c
enario
process until every
G
E
NCO’
s
(,
)
0
i
gm
is t
r
ue, at the
moment, the
cu
rre
nt eq
uilibriu
m
me
ssage
set
12
3
'(
'
,
'
,
'
)
mm
m
m
is n
a
med
the group
equilibrium
message. Fi
nally, t
he market operati
on departm
ent
plugs the group equili
brium
messag
e
12
3
'(
'
,
'
,
'
)
mm
m
m
in
to outcome f
unctio
n
s
1
()
hm
,
2
()
hm
and
3
()
hm
, then
i
P
the
output of GENCO
i
and
p
th
e uniform cl
e
a
ring p
r
ice co
uld be obtain
ed. In the case, the gro
u
p
equilibrium m
e
ssage is
12
'
2
7
.
69
94
,
'
11
.4
19
1
mm
an
d
3
'
35.9924
m
and the
wh
ole gen
eratio
n
side p
o
wer m
a
rket clea
rin
g
information o
f
t
he three G
E
NCO
s
ca
se
is listed in Ta
ble 3.
Table 3. The
Market Cle
a
ri
ng Informatio
n of the Thre
e GENCO
s
Case
Uniform Clearing
Price: 58.3703 (
￥
/ MW)
GE
NC
O
i
Output (MW)
Total
Revenue (
￥
)
Marginal Revenu
e (
￥
/ MW)
1 30.6709
1790.27
58.3703
2 46.9512
2740.56
58.3703
3 22.3779
1306.21
58.3703
3. The Characteristic Anal
y
s
is of Generati
on Side
Po
w
e
r Mark
et Comp
etiti
v
e
Mechanis
m
based on
th
e Designing
Economic Mechanisms T
h
eor
y
(1) T
he po
we
r market me
chani
sm is de
centrali
zed d
e
c
isi
on an
d pri
v
acy pre
s
e
r
ving.
Evaluation Warning : The document was created with Spire.PDF for Python.
ISSN: 23
02-4
046
TELKOM
NIKA
Vol. 11, No. 4, April 2013 : 1967 –1
972
1970
When a
GENCO verifies
whether
or not it is
in equilibrium, they
just need to
know it
s
private info
rmation like p
a
ram
e
ters of
the gen
erat
io
n co
st, and it
is not n
e
cessary to
rep
o
rt
its
private inform
ation to other
GENCO
s
or
the market op
eration d
epa
rtment.
(2) T
he po
we
r market me
chani
sm is in
centive comp
a
t
ibility.
If the power
market ope
ra
tion follows t
he prin
cipl
e of profit maximization, the o
u
tput
i
P
of GENCO
i
should
have
a
relatio
n
ship
sho
w
n
as th
e Equatio
n (7)
with the
u
n
iform
clea
ri
ng
price
p
.
ii
M
RM
C
(6)
()
/
(
2
)
ii
i
Pp
(7)
Acco
rdi
ng to the paramete
r
transfo
rmatio
n in Table 2, we obtai
n:
21
()
/
i
Pp
(8)
Whe
r
e
1
111
(,
,
)
ab
c
,
22
2
2
(,
,
)
ab
c
.
Plug the ma
rket
clea
rin
g
informatio
n
listed in
T
abl
e 3 into the
Equation
(8
), verify
wheth
e
r o
r
n
o
t the market
operation fol
l
ows the pr
i
n
ciple of p
r
ofit maximizatio
n
. The re
sult
o
f
verification i
s
sho
w
n in Ta
b
l
e 4.
Table 4. The
Verificatio
n
of the Profit Maximization
GE
NC
O
i
Marginal Revenu
e
(
￥
/ MW)
Output
(MW
)
1
(
1
a
、
1
b
、
1
c
)
2
(
2
a
、
2
b
、
2
c
)
Marginal Cost
(
￥
/ MW)
1 58.3703
30.6709
1.573
10.125
58.3703
2 58.3703
46.9512
1.039
9.588
58.3703
3 58.3703
22.3779
1.898
15.897
58.3703
Table
4 p
r
e
s
ents th
at the
power
market
ba
sed
on
th
e de
sig
n
ing
e
c
on
omic me
chani
sms
theory follo
ws the p
r
inci
pl
e of profit m
a
ximiza
tion t
o
clea
r the
market. At the moment, e
a
ch
GENCO get
s the maximu
m profits in
corre
s
p
ondi
n
g
outputs, a
n
d
the entire
market re
so
u
r
ce
allocation a
c
h
i
eves the
Pareto Optimalit
y
.
Figure 2. The
Margin
al Co
st Cu
rve of GENCO
s
(3) T
he po
we
r market me
chani
sm is
info
rm
ationally ef
ficient
.
1) Due to t
he de
cent
rali
zed
de
cisio
n
,
GENC
Os j
u
st re
qui
re t
o
kn
ow thei
r private
informatio
n, whi
c
h is h
e
lpf
u
l for GENCOs to
improve their ob
se
rvational efficie
n
cie
s
.
2)
Com
pared
with th
e tra
d
itional p
o
we
r ma
rket wit
h
the
uniform cle
a
ri
ng p
r
ice, th
e
market ba
se
d
on the
de
sig
n
ing e
c
o
nomi
c
me
ch
ani
sm
s t
heo
ry
u
s
e
s
f
e
we
r si
ze
of
t
he me
ss
ag
e
spa
c
e.
3) The
po
wer market ba
se
d on the de
si
gning e
c
o
n
o
m
ic me
cha
n
i
s
m
s
theory
can re
du
ce
the computing complexity
of t
he m
a
rket
operation department, an
d improves t
he ability of t
h
e
Evaluation Warning : The document was created with Spire.PDF for Python.
TELKOM
NIKA
ISSN:
2302-4
046
Applicatio
n of Desi
gnin
g
Econ
om
ic Mechani
sm
s to Powe
r Market (ZHU Yo
ngg
a
ng)
1971
entire sy
stem
’s inform
ation
processin
g
throu
gh
u
s
ing
the distribut
ed (cl
oud
) co
mputing [16]. In
gene
ral, the
gene
ration
si
de p
o
wer m
a
rket b
a
sed
on the
de
sig
n
ing
econom
ic m
e
chani
sms
theory is
info
rm
ationally efficient
.
(4) T
he po
we
r market en
coura
g
e
s
GE
NCOs to
co
mpete with e
a
ch oth
e
r h
e
a
lthily.The
relation
shi
p
b
e
twee
n GE
NCO
s
outp
u
ts and m
a
rgin
al co
st i
s
sh
own i
n
Fig
u
re 2. The
obli
que
lines a
r
e the
margi
nal cost
curve of GE
NCOs, t
he re
d line is the
market unifo
rm clea
ring p
r
i
c
e,
the cro
s
s poi
nt corre
s
po
nd
to each GE
NCO’
s output
s at the uniform
cleari
ng p
r
ice.
Figure 2 sh
ows that GE
NCO
2’s
out
put and total
revenu
e are most for i
t
s lea
s
t
gene
ration
co
st (the l
o
west
margi
nal
co
st curve
)
. On t
he contra
ry, GENCO 3’
s
output an
d to
tal
revenu
e a
r
e l
east fo
r its m
o
st ge
ne
ratio
n
co
st. We can get the
same result b
y
obse
r
ving t
he
market cle
a
ri
ng inform
atio
n in Table 3.
Thus, th
e ge
neratio
n
side
power m
a
rket
based o
n
the
desi
gnin
g
e
c
onomi
c
me
ch
anism
s
theory en
cou
r
age
s GE
NCOs to cut do
wn the ge
ner
ation co
st. Th
at is, who
s
e
gene
ration
co
st is
low, who get
s more
reven
u
e
. In this kin
d
power
market mechanism, GENC
Os
wil
l
comp
ete wit
h
each other h
ealthily by updati
ng gen
eration equip
m
ent and tech
nologi
es, imp
o
rting adva
n
ced
manag
eme
n
t philo
sophy, i
m
provin
g the resou
r
ce utilization effici
en
cy.
4. Conclusio
n
Acco
rdi
ng to
the info
rmati
on e
c
o
nomi
c
s, the
pap
er
sug
g
e
s
ts th
at the info
rmati
on
co
st
will increase
sharply if the incent
ive power m
a
rket i
s
lack of the
inform
ationa
lly efficient
. T
he
gene
ration
si
de po
wer ma
rket ba
se
d on
the designi
n
g
eco
nomi
c
mech
ani
sm
s theory intro
d
u
ce
s
the phil
o
soph
y of the
i
n
form
ationally eff
i
cient
to
the
i
n
ce
ntive po
wer m
a
rket,
which
ma
ke
s t
h
e
power market own features of
the i
n
centive compati
b
ility, the
info
rm
ationally ef
ficient
an
d th
e
decentrali
ze
d
deci
s
ion.
By analyzing
the ca
se of
three GE
NCO
s
, the pa
per find
s tha
t
the powe
r
market
desi
gne
d by
the de
sig
n
i
ng e
c
on
omi
c
mechani
sm
s the
o
ry foll
ows the
pri
n
cipl
e of p
r
ofit
maximizatio
n
, which me
a
n
s the me
chani
sm lead
s to the Pareto Optimali
ty of reso
urce
allocation; m
ean
while
GE
NCOs are p
e
r
mitted to
pur
sue
profits m
a
ximization.
And this ki
nd
of
power m
a
rke
t
can
re
duce
the info
rmat
ion cost
duri
ng runni
ng t
he enti
r
e m
a
rket
obviou
s
l
y
.
Beside
s, the
gene
ration
si
de p
o
wer
ma
rket
ha
s the
cha
r
a
c
teri
stic of en
co
ura
g
i
ng GE
NCO
s
to
comp
ete with
each oth
e
r h
ealthily, which make
s
the
power ma
rket develop
furth
e
r co
mpetitio
n.
No
w, Chi
na i
s
p
e
rfe
c
ting t
he ge
ne
ratio
n
sid
e
p
o
wer
market. The
rese
arch
of thi
s
p
ape
r
coul
d provide
som
e
ne
w id
eas
and
helpf
ul exploratio
n
to the practi
ce and th
eoretical
resea
r
ch
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ese power market
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