A discriminatory auction for the day-ahead electricity market: its effect on windfall profits

Abstract

The main goal of the present Master Thesis is to analyze the Spanish elec- tricity day-ahead market from the design perspective, which like most European countries follows a uniform auction. Indeed, the price is set by the most expen- sive technology, which establishes the remuneration for the rest of the generators, leading to windfall profits for them. In this context, we analyze the changes that can be generated in the revenues of the generators if we switch from a uniform system to a discriminatory system, since in the latter system the generators will get the price of their bid instead of the marginal price. We also show the effect of a change in the bidding strategies. For this, we set different scenarios to show how the generated revenues would change after a change in the genera- tors’ bidding strategies. Our results show that we refuse the concept of revenue equivalence, since different revenues are generated depending on the scenario. Generally, the revenues obtained by the uniform system would be higher than the revenues generated by the discriminatory system. Hence, the discriminatory system would be more economical for consumers, since lower system costs would be generated. However, we observe differences by month and technology.