2020 PES GM 8/4 Panel Video: Price Formation Under Operational Uncertainty

This panel will discuss electricity market design that explicitly considers uncertainty as well as the corresponding pricing scheme. Currently, the majority of US electricity markets price electricity using locational marginal prices (LMPs), which are normally derived from a deterministic, centralized market-clearing model, e.g. security-constrained economic dispatch model. However, such model does not explicitly consider various uncertainties faced by the system operator. These uncertainties ranging from discrete events (e.g. equipment failures) to continuous disturbances (e.g. due to the proliferation of renewable generation resources) have already posed great challenges to system operation and pricing of electricity under the rapidly changing generation portfolios. System operators start exploring alternative methods to manage a constantly increasing level of uncertainties, incurring additional operating costs. However, such costs may not necessarily be reflected in current LMPs. To better manage uncertainty, new models that is based on stochastic programming, either by means of scenario-based or chance-constrained optimization, or explores corrective actions have been proposed to improve the market efficiency and capture the cost of uncertainty management in the market prices. This panel will invite experts from both industry and academia to discuss pros and cons of different market designs and pricing schemes, as well as their economic impacts on wholesale electricity markets.