CAREER: Pricing Non-convexities Toward Transparency in Electricity Markets

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The issue of transparency has been a persistent concern from the stakeholders in electricity markets. While the markets throughout the U.S. have been redesigned after the California electricity crisis, there remain a lot of ambiguities arising from the sophisticated market rules, resulting in numerous long-lasting litigations. Moreover, emerging market mechanisms including demand response may bring in undesirable gaming opportunities, which can be further exacerbated by the lack of transparency. It is envisioned that improving market transparency is the key to limiting the room for manipulation. This five-year project aims to build analytical frameworks to understand, evaluate, and adapt the evolving market mechanisms, toward the long-term goal of creating market mechanisms and providing policy recommendations that enhance the transparency, reduce the manipulation, and ultimately improve the efficiency of electricity markets. In light of the fact that the underlying engineering details are typically highly abstracted in policymaking, this project will recognize and incorporate the intricate operational constraints in power systems into the economic modeling, elevating the role of engineers in market design. This project will investigate virtual transactions and demand response, as integral parts in today's market design, and accomplish the following objectives: (1) laying the analytical foundation for wholesale electricity market design, through the formulation of a two-settlement, networked market model which characterizes the spatiotemporal interdependency of market operations; (2) scrutinizing the design of virtual transactions, and evaluating their impact on both price convergence and economic efficiency; (3) quantifying the manipulation of baseline methods in demand response programs, and creating novel mechanisms that balance the design trade-offs; and (4) integrating research with education to promote energy literacy, through innovative outreach activities which foster inclusive opportunities in energy education.