09.Slides for Bidding into Electricity Auctions (100510)

09.Slides for Bidding into Electricity Auctions (100510) -...

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Profit-Maximizing Bidding into Texas Electricity Market
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How the Electricity Market Works in Texas • (1) Individually negotiated (bilateral) trades – Example: West Texas Utilities agrees to sell City of College Station 500 megawatts (MW) of electricity every hour for $40/MWh – 95-98% of all electricity in TX traded bilaterally – On the day before it happens, the buyer & seller schedule for the power to be “transported” on electricity transmission grid
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How the market works (contd) • (2) Spot market auction is run for the remaining 2-5% of trades – Example 1: hotter/colder than forecasted so more/less power needed – Example 2: a powerplant has an outage so more power needed from elsewhere – Market run with an auction – There are several large and many small firms – Money on table = $100-$4000 per hour depending upon size
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How the Spot Auction Works • Firms bid “supply functions” for each hour of day • All suppliers bidding below p* will produce and get paid p* for each unit it produces Firm 1 Firm 2 Total Supply Bid Total Demand P*
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Your Problem: How to construct profit- maximizing bids into the spot auction? • Ignore the “bilateral market” and just focus on the
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This note was uploaded on 05/01/2011 for the course ECON 689 taught by Professor Staff during the Spring '08 term at Texas A&M.

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09.Slides for Bidding into Electricity Auctions (100510) -...

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