Market Power in Convex Hull Pricing

Abstract: The start up costs in many kinds of generators lead to complex cost structures, which in turn yield severe market loopholes in the locational marginal price (LMP) scheme. Convex hull pricing (a.k.a. extended LMP) is proposed to improve the market efficiency by providing the minimal uplift payment to the generators. In this letter, we consider a stylized model where all generators share the same generation capacity. We analyze the generators' possible strategic behaviors in such a setting, and then propose an index for market power quantification in the convex hull pricing schemes.