Pricing, Modeling, and Simulation of an Electricity Market

This chapter covers three key aspects of an electricity market: pricing, modeling, and simulation. Pricing mechanism used in any electricity market is a fundamental and critical foundation on which the entire electricity market is built. Generally, there are two major pricing mechanisms employed in any electricity market: zonal pricing and nodal pricing. In an electricity market, the market clearing price is the price that balances the demand with the supply. If the market‐clearing rule is based on the uniform‐price auction and assuming there is no congestion in the system, buyers with bids at or above the clearing price pay that cleared price for the quantity purchased. Modeling and simulation of an electricity market is also important as it can help us understand and answer many questions related to what‐if scenarios and situations. There are generally two major categories in electricity market models: fundamental models and market equilibrium models.