Block pricing and bidding rule for spot electric power markets

Market design is one of the most challenging issues in the electric power industry reconstruction worldwide. The current instant bidding rule widely accepted has exposed many problems. The inherent causes of the problems are that some fundamental characteristics of electric power production are not carefully considered in designing the market bidding rules when applying the spot price theory. In this paper, the shortcomings of the instant bidding rule is studied first. It is argued that the spot pricing theory is not necessarily equivalent to the instant bidding rule. Based on this study, the block bidding rule and the associated market scheme are presented in this paper. The basic idea of this scheme is that the market demand is divided into multiple blocks and the auction is performed for each block with an individual market clearing price, which can reflect the "quality" of power supply at different demand level and lower the costs of end customers or energy service companies. By comparing the characteristics of the two bidding rules, presenting theoretic analysis and providing numerical examples, the paper shows that the market with the block bidding rule is more efficient than those with the instant bidding rule. Furthermore the proposed market scheme is more suitable for electric power production and more convenient for operating power markets.