Strategic Bidding in Extended Locational Marginal Price Scheme

The locational marginal price scheme, though widely adopted, fails to reflect the startup costs for many generators in the real-time market. To solve this issue, the extended locational marginal price (eLMP in short, a.k.a. convex hull price) has been proposed. The key idea is to convexify the non-convex generation cost functions due to the startup costs, and then design the uplift payment whenever necessary. While eLMP partially solves the incentive issue, there are still chances for generators to manipulate the market prices (as well as the uplift payments) by strategic bidding. In this letter, we first propose a profit decomposition method to evaluate different bidding strategies’ impacts on individual payoffs. This decomposition allows us to better identify the potential strategic generators and investigate their best strategies. We further propose to use the maximal markup as an index for eLMP scheme to quantify market power in the whole system. Numerical studies further highlight the existence of market power in practice.