Speaker: Michael Pavlin
School of Business and Economics
Wilfrid Laurier University
Title: Exploring the incentives of electricity market participants
This talk will begin by introducing a model of optimal decision making for a wind producer operating in a two stage electricity market. Data compiled from Midwest ISO shows a systematic bias in commitment in the forward market which is inconsistent with risk neutral agents operating in fully competitive markets. The two competing explanations for this anomaly, risk aversion and market power, have different implications for market design but they cannot be reliably differentiated without an accurate model of the pricing mechanism. The second part of this talk will deal with modeling the pricing mechanism in electricity markets which use locational marginal prices (LMP). The LMP at each node corresponds to a shadow price in the welfare maximizing power flow problem. This mechanism depends on unobserved network structure. We derive an inverse optimization problem whose solution provides a model of an electricity network consistent with observed prices and allocations.
This work was completed in collaboration with John Birge and Ali Hortacsu at the University of Chicago.