Optimization Modeling to Address the Impacts of Electric Power Market Design on Operations and Policy

The electric power system is affected by numerous inefficiencies. Operation of the power grid uses intricate mathematical models to schedule supply and demand instantaneously, and complex settlement mechanisms to charge and pay participants. This dissertation focuses on four aspects of electric market design and operation endeavoring to improve economic and operational efficiency. Each chapter utilizes bottom-up engineering-economic models to simulate power grid operations. The overall goal of the dissertation is to analyze electric market inefficiencies and examine proposed alternative designs and policies. The dissertation begins with characterizing the electric system and the role and challenges of renewable energy in Chapter 1. Then Chapter 2 proposes a new method for pricing electricity in organized wholesale markets, called the Dual Pricing Algorithm. The current pricing method is non-confiscatory but does not capture the full cost of operation in marginal prices. The proposed method achieves these two aims while also providing further transparency. Chapter 3 examines potential benefits of three adjustments in reserve procurement procedures, and estimates economic efficiency using a European test system. Each adjustment improves current practice, either in the quantity of reserves needed, the procurement method, or the degree of coordination with neighboring countries. The results demonstrate coordination among countries shows greatest consistent benefits among the three adjustments. Chapter 4 examines integration of carbon policies into real-time markets when the emissions system encompasses a sub-region of the larger electricity market, comparing five alternative models. Findings suggest that there is a trade-off between emissions and cost, with no one dominant method to identify and manage leakage from the regulated system. Chapter 5 analyzes degrees of coordination between neighboring systems for both day-ahead and real-time energy markets. The simulations for a test case find that coordinating in real-time without coordination in the day-ahead market results in higher costs compared to not coordinating at all. These chapters examine trade-offs, whether they are between ease of implementation, economic efficiency, renewable integration, or emissions reductions. Overall, the dissertation contributes a framework for assessing market design improvements, and demonstrates to system operators and decisions makers that coordination between neighboring regions can increase economic efficiency