Reconciling social welfare, agent profits, and consumer payments in electricity pools

Under a common condition called profit suboptimality, market equilibrium cannot be reached in electricity pools; in other words, no system marginal price exists for which the profit-driven independent generators would self-schedule to levels that exactly meet the demand. On the other hand, although a centrally imposed generation schedule satisfies power balance, it may force some agents to operate at a profit below what they could achieve under self-scheduling. This paper examines these incompatible goals and proposes a conflict resolution scheme based on the notion of generalized uplift functions. These functions are defined such that they: (i) change the offered generation cost characteristics so as to increase the system marginal price, thus forcing the consumers to compensate the generators for part of their combined loss of profit; (ii) execute an equitable transfer of revenues among the generators so that these also participate in any loss of profit compensation; (iii) ensure market equilibrium at the centralized minimum cost solution; and (iv) ensure that the net sum of the uplifts adds up to zero.