Bidding under price uncertainty in multi-unit pay-as-bid procurement auctions for power systems reserve |
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Authors: | Derk J Swider Christoph Weber |
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Institution: | 1. Institute of Energy Economics and the Rational Use of Energy, University of Stuttgart, Hessbruehlstrasse 49a, 70565 Stuttgart, Germany;2. Chair of Energy Management, University of Duisburg-Essen, Universitaetsstrasse 12, 45117 Essen, Germany |
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Abstract: | In this paper a methodology for profit maximized bidding under price uncertainty in a day-ahead, multi-unit and pay-as-bid procurement auction for power systems reserve is proposed. Within this novel methodology a bidder is considered to follow a Bayes-strategy. Thereby, one bidder is assumed to behave strategically and the behavior of the remaining is summarized in a probability distribution of the market price and a reaction function to price dumping by the strategic bidder. With this approach two problems arise: First, as a pay-as-bid auction is considered, no uniform price and therefore no single probability distribution of the market price is readily available. Second, if historic bidding data of all participants are used to estimate such a distribution and market power is a relevant factor, the bid of the strategically behaving bidder is likely to influence the distribution. Within this paper for both of the problems solutions are presented. It is shown that by estimating a probability of acceptance the optimal bidding price with respect to a given capacity can be calculated by maximizing a stochastic non-linear objective function of expected profit. Taking the characteristics of recently established markets in Germany into account, the methodology is applied using exemplary data. It is shown that the methodology helps to manage existing price uncertainties and hence supports the trading decisions of a bidder. It is inferred that the developed methodology may also be used for bidding on other auction markets with a similar market design. |
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Keywords: | Bayes-strategy Bidding Decision support Multi-unit Pay-as-bid Power systems reserve Price uncertainty Procurement auction |
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