Discrete decisions, plants revenues and prices in electricity markets

Instituto de Investigación Tecnológica (IIT) Universidad Pontificia Comillas-Madrid Abstract In power systems models, there are some variables of discrete nature, such as those modeling the state of the power units, started up or stopped. As a result, the marginal cost of operation is, in general, insufficient to pay the costs associated with these variables (eg, start up cost). Therefore, even if highly idealized conditions, as perfect competition, are assumed, the marginal cost is not expected to be the electricity price. From the point of view of mathematics, the problem arises due to the non convex nature of the function cost. Currently, there is no general method in the literature to estimate the prices in market equilibrium, not even being possible to prove its existence. This paper propose some alternatives to calculate the value of these prices, when the effect of the discrete variables in the power market model is considered.