A revenue equivalence theorem for electricity auctions

The purpose of this paper is to analyze the real–time trading of electricity. We address a model for an auction–like trading which captures key features of the real–world electricity markets. Our main result establishes that, under certain conditions, the expected total payment to the electricity producers is independent on particular auction type. This result is analogous to the revenue equivalence theorem known for classical auctions and could contribute to an improved understanding and comparison of different electricity market designs. 1 An electricity auction model Over the last decade, electric markets have been significantly restructured throughout the world. The electricity industry restructuring describes in this context the process of breaking up vertically integrated electricity utilities and introduction commercial interfaces between the functions of generation, transition, distribution and retailing of electrical energy. The motivation for these reforms is to harness completive pressure to improve the economic efficiency of electricity industry. However, the competition in electricity production and trading raises various problems concerning the optimal market design, the risk estimation, and the strategy optimization for power producers and retailers. We analyze here a mathematical model for electricity trading in real time. The basic specialty of electricity markets is that the electrical energy is not economically storable. Thus, a deregulated electricity market is different from the usual commodity market since it consists of two parts: of the real–time market for contracts on the immediate electricity