Integrated Pool/Bilateral/Reserve Market Operation Under Pay-as-Bid Pricing

This paper analyzes the characteristics of a pricing model designed for working under the classical marginal price (MP) and the pay as bid (PAB) strategies in a combined market structure involving the presence of long term forward physical bilateral contracts (not financial contracts), and short term trades like pool and ancillary reserve services. The model allows studying the implications on the operation and the resulting economic indexes such as revenues and payments portfolios and prices. The purpose of the model is exploiting the advantages of centralized market coordination and the potential benefits of using the PAB pricing strategy like obtaining less risk in supplying loads, price stability and financial adequacy (i.e. reconciliation between revenues and payments). Because of its characteristics, this strategy is currently considered as an alternative in some actual systems. It is not the focus here to discuss which of the pricing approaches should be followed but instead ob-serving their behavior in the combined market. Numerical cases show that even considering reserve service bids independent of the generators energy bids in a joint market, the resulting reserve prices depend on the committed capacity allocated to supply the long term bilateral contracts and pool demand. This interaction reflects economic signals for both energy and reserve markets allowing generators to be able to estimate their opportunity cost in a consistent way because of the stability of prices and adequacy obtained in the three markets by using PAB. The more stable and adequate behavior (if compared with the nodal prices under marginal pricing) is verified by observing different firm bilateral contract distributions and represents an advantage for market purposes. Moreover, the pricing model allows obtaining the reconciliation of revenue and payment portfolios in all operation conditions.The proposed model has the following characteristics: i) incorporation of bilateral, pool, and reserve markets in a joint market of services; ii) the combined market allows assessing the impact of electricity products interactions on the operation and consequently on prices; Hi) Allows to compare the pay-as-bid pricing and marginal pricing approaches in several scenarios; iv) Market agents can obtain detailed portfolios in terms of revenues and payments for awarded bids; v) ensures the reconciliation between payments and revenues with a reasonable price stability; vi) Allows to obtain economic signals for estimating opportunity costs of electricity products; vii) Allows the possibility of testing several operating scenarios with price strategies in order to evaluate the impact on agents portfolios. These characteristics of the model make it attractive for planning the impact of several operation scenarios and bid strategies on the agents portfolios based on historic data.