Allocation Mechanisms in Rationed Markets

Abstract

Economic theory has come to play an important role in power system operations through the design of wholesale markets that are central to their operation. Furthermore, transactive energy places economic theory as a cornerstone in its operational concept as it seeks to integrate the technical needs of the power system with the preferences of its participants. Traditionally the mechanism employed is the continuous double-auction but de-pending on the circumstances the power system find itself in, this mechanism may or may not be the most appropriate, i.e. a one-size fits all market institution cannot be recommended without regard for the features of the underlying trading environment. This paper seeks to explain the economic rationale that guides the choice of a market institution and takes recourse to a theoretical demonstration in the context of a rationed power system scenario where demand exceeds generation (due to any number of events such as outages, microgrid operation, etc) and electrical energy must be rationed to better understand which types of mechanisms are most appropriate.