Reduction of Market Power and Stabilisation of Outcomes in a Novel and Simplified Two-Settlement Electricity Market

Modern electricity markets conduct a two-settlement procedure. Ahead of time, they allocate definite supply as well as reserves. Close to the time of consumption, they balance supply and demand. Bidding in these two auctions poses a challenge for automated bidding by agents, which will be more common in future electricity markets and so-called “smart grids”. In a decision-theoretic model, we implement the current bidding practice that uses two independent bids and a novel, unified format that simplifies computation. We show through Monte-Carlo simulations in one-shot settings that the unified format restricts market power of suppliers in exploitable settings, and is also less vulnerable to uncertainty of bidders about market outcomes.