A Comparative Study of Pricing Mechanisms to Reduce Side-Payments in the Electricity Market: A Case Study for South Korea
Under marginal-cost pricing, some generators cannot recover their production costs at the market price due to non-convexities in the electricity market. For this reason, most electricity markets pay side-payments to generators whose costs are not sufficiently recovered, but side-payments present the...
| Main Authors: | , , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
MDPI AG
2021-06-01
|
| Series: | Energies |
| Subjects: | |
| Online Access: | https://www.mdpi.com/1996-1073/14/12/3395 |
| _version_ | 1797530826622107648 |
|---|---|
| author | Hansol Shin Tae Hyun Kim Kyuhyeong Kwag Wook Kim |
| author_facet | Hansol Shin Tae Hyun Kim Kyuhyeong Kwag Wook Kim |
| author_sort | Hansol Shin |
| collection | DOAJ |
| description | Under marginal-cost pricing, some generators cannot recover their production costs at the market price due to non-convexities in the electricity market. For this reason, most electricity markets pay side-payments to generators whose costs are not sufficiently recovered, but side-payments present the problem of deteriorating transparency in the market. Recently, convex hull pricing and extended locational marginal pricing have been reviewed or gradually introduced to reduce side-payments. Another method is to include non-convex costs in the market price, which is applied in the Korean electricity market. Although it is not generally considered in the electricity market, the Vickrey auction method is also one of the pricing mechanisms that can reduce side-payments. The main purpose of this study is to analyze the financial impact of these alternative pricing mechanisms on market participants through rigorous simulation. We applied the alternative pricing schemes to the Korean electricity market, and the impacts are analyzed by comparing the cost aspect of an electricity sales company and the profit aspect of generation companies. As a result of the simulation study, each pricing mechanism not only differed in the degree to which side-payments are reduced but also has different effects on the type of generators. |
| first_indexed | 2024-03-10T10:35:32Z |
| format | Article |
| id | doaj.art-cbbc73e79f7143c685482ba080c7e533 |
| institution | Directory Open Access Journal |
| issn | 1996-1073 |
| language | English |
| last_indexed | 2024-03-10T10:35:32Z |
| publishDate | 2021-06-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Energies |
| spelling | doaj.art-cbbc73e79f7143c685482ba080c7e5332023-11-21T23:21:42ZengMDPI AGEnergies1996-10732021-06-011412339510.3390/en14123395A Comparative Study of Pricing Mechanisms to Reduce Side-Payments in the Electricity Market: A Case Study for South KoreaHansol Shin0Tae Hyun Kim1Kyuhyeong Kwag2Wook Kim3Department of Electrical and Electronics Engineering, Pusan National University, Busan 46241, KoreaDepartment of Electrical and Electronics Engineering, Pusan National University, Busan 46241, KoreaDepartment of Electrical and Electronics Engineering, Pusan National University, Busan 46241, KoreaDepartment of Electrical Engineering, Pusan National University, Busan 46241, KoreaUnder marginal-cost pricing, some generators cannot recover their production costs at the market price due to non-convexities in the electricity market. For this reason, most electricity markets pay side-payments to generators whose costs are not sufficiently recovered, but side-payments present the problem of deteriorating transparency in the market. Recently, convex hull pricing and extended locational marginal pricing have been reviewed or gradually introduced to reduce side-payments. Another method is to include non-convex costs in the market price, which is applied in the Korean electricity market. Although it is not generally considered in the electricity market, the Vickrey auction method is also one of the pricing mechanisms that can reduce side-payments. The main purpose of this study is to analyze the financial impact of these alternative pricing mechanisms on market participants through rigorous simulation. We applied the alternative pricing schemes to the Korean electricity market, and the impacts are analyzed by comparing the cost aspect of an electricity sales company and the profit aspect of generation companies. As a result of the simulation study, each pricing mechanism not only differed in the degree to which side-payments are reduced but also has different effects on the type of generators.https://www.mdpi.com/1996-1073/14/12/3395marginal-cost pricingsystem marginal price (SMP)convex hull pricingextended locational marginal price (ELMP)Vickrey auctionside-payment |
| spellingShingle | Hansol Shin Tae Hyun Kim Kyuhyeong Kwag Wook Kim A Comparative Study of Pricing Mechanisms to Reduce Side-Payments in the Electricity Market: A Case Study for South Korea Energies marginal-cost pricing system marginal price (SMP) convex hull pricing extended locational marginal price (ELMP) Vickrey auction side-payment |
| title | A Comparative Study of Pricing Mechanisms to Reduce Side-Payments in the Electricity Market: A Case Study for South Korea |
| title_full | A Comparative Study of Pricing Mechanisms to Reduce Side-Payments in the Electricity Market: A Case Study for South Korea |
| title_fullStr | A Comparative Study of Pricing Mechanisms to Reduce Side-Payments in the Electricity Market: A Case Study for South Korea |
| title_full_unstemmed | A Comparative Study of Pricing Mechanisms to Reduce Side-Payments in the Electricity Market: A Case Study for South Korea |
| title_short | A Comparative Study of Pricing Mechanisms to Reduce Side-Payments in the Electricity Market: A Case Study for South Korea |
| title_sort | comparative study of pricing mechanisms to reduce side payments in the electricity market a case study for south korea |
| topic | marginal-cost pricing system marginal price (SMP) convex hull pricing extended locational marginal price (ELMP) Vickrey auction side-payment |
| url | https://www.mdpi.com/1996-1073/14/12/3395 |
| work_keys_str_mv | AT hansolshin acomparativestudyofpricingmechanismstoreducesidepaymentsintheelectricitymarketacasestudyforsouthkorea AT taehyunkim acomparativestudyofpricingmechanismstoreducesidepaymentsintheelectricitymarketacasestudyforsouthkorea AT kyuhyeongkwag acomparativestudyofpricingmechanismstoreducesidepaymentsintheelectricitymarketacasestudyforsouthkorea AT wookkim acomparativestudyofpricingmechanismstoreducesidepaymentsintheelectricitymarketacasestudyforsouthkorea AT hansolshin comparativestudyofpricingmechanismstoreducesidepaymentsintheelectricitymarketacasestudyforsouthkorea AT taehyunkim comparativestudyofpricingmechanismstoreducesidepaymentsintheelectricitymarketacasestudyforsouthkorea AT kyuhyeongkwag comparativestudyofpricingmechanismstoreducesidepaymentsintheelectricitymarketacasestudyforsouthkorea AT wookkim comparativestudyofpricingmechanismstoreducesidepaymentsintheelectricitymarketacasestudyforsouthkorea |