Analysis of Nonconvexities for Pricing Inertial Response in Electricity Markets

The high penetration of inverter-based generation imposes the necessity to include an inertia requirement in the unit commitment (UC) formulation. Additionally, fair compensation must be provided to incentivize the participation of capable suppliers. Being a discrete service of inherent nonconvex nature, the inertial response (IR) is particularly challenging to pricing. We define explicit marginal IR prices and analyze their economic value by suitably extending three UC pricing methods. The first one is based on a primal-dual formulation that ensures a revenue-adequate condition, while the second and third ones are the convex-hull pricing and an approximation proposed in the literature. For the considered instances, the computed IR prices succeed in signaling the inertia scarcity. As such, the proposed mechanisms ensure IR payments at a level that incentivizes units to support system security.