Power auctions and network constraints

The merit order dispatch of generating units in a competitive power pool or power exchange can be considered as an auction. The use of a nondiscriminating auction that pays all winning bidders at a uniform price is consistent with the incentives for cost-revealing bids by market participants. This paper examines whether the nondiscriminating feature of an auction is possible when transmission constraints are considered under a framework of location dependent nodal spot pricing. The paper illustrates arbitrage opportunities that can result in strategic behavior by bidders under such a system.