SUMMARY

The different liberalization processes of international electricity systems agreed in the need for optimization and operational efficiency, however, in many cases, these objectives have not been fulfilled. Two major causes of these inefficiencies are the inadequate application of auction mechanisms in the daily energy markets and the reduced demand participation in the processes defining prices.

The work presented in this thesis focuses on the design of two new iterative auction methodologies applicable to the daily energy markets. These innovative methodologies will enable the active participation of demand in the matching auction process as a direct function of their participation, not just based on market price response.

These new methodologies aimed at increasing the overall efficiency of the daily energy market, reducing its price volatility and discouraging generators to exercise a monopolized market, which will improve the efficiency of the system as a whole. The new iterative methodologies developed in this thesis are:

Uniform Iterative Auction Mechanism

Mechanism based on the Walrasian principle, where market operator defines the energy market price for each time period throughout an iterative process. This mechanism reveals wider information related to costs and agents’ values participating in the market, increasing overall economic efficiency of the market, and mitigating the market power effect of the generating companies.

Validation of this auction mechanism was performed using an economic experiment to capture cognitive realities between human players and the market institution analyzed. The experiment compares the performance of this new mechanism with the conventional Uniform Auction mechanism.
Uniform Auction with Demand Resources

This conventional Uniform Auction mechanism integrates the use of demand resources applying an iterative process for optimization.  Modifying consumer preferences, it is retired from the market matching those marginal generating units that significantly increase the price, thus reducing market price and eliminating the artificial income from generators that reduce market efficiency and distort price signals to prospective investors. Its application allows the demand to control price volatility and discourage market power.

For validating this proposed new mechanism is developed a comparative experiment with the results of the Iberian Electricity Market in 2010.