A Distributed Optimization Approach to the Multi-Regional Day-Ahead Clearing Process in Electricity Markets

Abstract: The implementation of electricity markets based on locational marginal pricing in a multi-settlement process has allowed wholesale competition, with pricing mechanisms that incentivize the optimal allocation of generation, transmission, and demand-response resources. While efficiency and reliability gains have been achieved in the US at a regional level, the lack of adequate inter-regional coordination mechanisms has limited broader gains. The shortcomings of cross-border coordination of electricity markets become more apparent as the industry transitions towards higher penetration of renewable resources, which tend to be concentrated in certain regions of the country, usually distant from load pockets. In addition to allowing market participants to respond to economic signals beyond the market region where their assets reside, a coordinated market solution would allow the extension of market mechanisms such as financial transmission rights and capacity contracts to cover transactions across borders; thereby, reducing price uncertainty around the investment in new generation resources. This paper presents a distributed solution to the unit commitment problem that allows for full coordination of the market clearing process across interconnected electricity markets.