The procurement of power supply to meet future load is complex because it requires a combination of various power supply attributes. With the growing share of variable generation, power systems must ensure a proper mix of power resources to be able to meet the net load profile. Together power suppliers must be able to meet: (i) total projected consumption over a particular period (MWh/year), (ii) peak demand (MW), and (iii) load ramping requirements (i.e., capacity to increase or decrease supply at a certain rate MW/minute).
Designing an auction to procure a particular mix of these various attributes is complex because each power source (i.e. generation technology) presents a different combination of attributes. Thus, one of the main challenges is to design an auction that is able to coordinate the procurement of new power plants so that aggregate supply meets the demand of each of the power system required attributes at least cost.
The first step to effectively procure power resources to meet future needs is product delineation. One must diagnose what are the attributes that are expected to become scarce in the electric power system in coming years. Based on this analysis, one can identify how products should be defined.
The second step is to determine how to best procure the supply of the chosen products. The auction theory literature provides guidance on how to structure auctions to meet the challenges of interdependent pricing of multiple products. The acquisition of a particular combination of power supply attributes to meet system needs from different suppliers –each of which offers a bundle of the various attributes in fixed proportions– is analogous to the procurement of products with complementarities, since the producer can only optimally price each product (attribute) when the price of the other products are known.
A hybrid auction design is generally best suited to meet this challenge. By sequentially combining two different auction designs, one can achieve the selection of the producers that are apt to supply the required combination of attributes at least cost, while obtaining a lower price for the buyers. The auction design that is most used in this context is the Combinatorial Clock Auction.
Brazil’s future power supply needs can be appropriately met with the procurement of three products:
· reliability options,
· peak-demand capacity, and
· flexible capacity.
The proposed auction design to implement the acquisition of these three products is a Combinatorial Clock Auction, composed of two-stages:
· in the first stage, a Decreasing-Price Clock Auction is employed to adjust prices of the various products to a level at which the quantities supplied of each product are slightly larger than the quantities one desires to acquire; and
· in the second stage, Sealed-Bid Auction is employed, in which each producer submits a single price-discount bid for their bundle of products.
The auctioneer then chooses the combination of bundles that meet the demand for the various products at least cost.
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