IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO.
4, NOVEMBER 2002
Multiperiod Auction for a
Pool-Based Electricity Market
José Manuel Arroyo, Member, IEEE, and Antonio J. Conejo, Senior Member, IEEE
Abstract—This paper presents a market clearing tool for the
Market Operator of a pool-based electricity market for energy.
This tool is transparent and fair for the market participants, and
simple to implement and to interpret. It preserves the privacy of the
corporate information of the participants and provides the right
signals to achieve economic efficiency. Furthermore, it recognizes
and properly models the technical (physical and inter-temporal)
constraints of the participant thermal power generators. From a
mathematical point of view, the proposed tool results in a mixed-in-
teger linear programming problem that can be efficiently solved
using currently available branch and cut software. To illustrate the
adequate functioning of the proposed market clearing procedure
different realistic case studies are analyzed in detail.
Index Terms—Market clearing tool, maximum net social wel-
fare, mixed-integer LP, pool-based electricity market.
NOMENCLATURE
Constants:
Price of the th block of the energy demanded by
consumer in period [$/MWh].
Price of the th block of the energy bid offered by
unit in period [$/MWh].
Minimum down time of unit [h].
Number of periods unit must be offline at the be-
ginning of the market horizon due to its minimum
down time constraint [h].
Number of periods unit must be online at the be-
ginning of the market horizon due to its minimum
up time constraint [h].
Number of units.
Number of consumers.
Number of blocks of the energy bid offered by unit
in period .
Number of blocks of the energy demanded by con-
sumer in period .
Upper limit of the th block of the energy demanded
by consumer in period [MW].
Upper limit of the th block of the energy bid of-
fered by unit in period [MW].
Capacity of unit , which is the sum of the energy
blocks offered by unit , ,
[MW].
Manuscript received October 4, 2001; revised March 6, 2002. This work was
supported by the Ministerio de Ciencia y Tecnología of Spain and the European
Union under Projects CICYT DPI2000-0654 and FEDER-CICYT 1FD97-0545.
J. M. Arroyo and A. J. Conejo are with the Departamento de Ingeniería
Eléctrica, Electrónica y Automática, E.T.S.I. Industriales, Universidad de
Castilla—La Mancha, Ciudad Real, E-13071 Spain (e-mail: JoseManuel.Ar-
royo@uclm.es; Antonio.Conejo@uclm.es).
Digital Object Identifier 10.1109/TPWRS.2002.804952
0885-8950/02$17.00 © 2002 IEEE
1225
Minimum power output of unit , which is equal
to the upper limit of the first energy block offered,
, [MW].
Ramp-down limit of unit [MW/h].
Ramp-up limit of unit [MW/h].
Start-up bid of unit in period [$].
Shut-down ramp limit of unit [MW/h].
Time periods unit has been offline at the beginning
of the market horizon (end of period 0) [h].
Start-up ramp limit of unit [MW/h].
Number of periods of the market horizon.
Time periods unit has been online at the beginning
of the market horizon (end of period 0) [h].
Minimum up time of unit [h].
Initial commitment status of unit (1 if it is online,
0 otherwise).
Variables:
Power consumed from the th block of the energy
demanded by consumer in period [MW].
Power produced from the th block of the energy
bid offered by unit in period [MW].
Power output of unit in period [MW].
Maximum available power output of unit in period
[MW].
0/1 variable which is equal to 1 if unit is online in
period .
0/1 variable which is equal to 1 if unit is started-up
at the beginning of period .
0/1 variable which is equal to 1 if unit is shut-down
at the beginning of period .
Sets:
Set of indices of the generating units.
Set of indices of the consumers.
Set of indices of the periods of the market horizon.
Set of blocks of the energy bid offered by unit in
period .
Set of blocks of the energy demanded by consumer
in period .
I. INTRODUCTION
I N THE framework of the nowadays increasingly competitive
power industry this paper considers an electricity market for
energy based on a pool. The Market Operator (MO) receives
energy bids from producers and consumers and determines, for
every hour, the market clearing price, the power production of
every bidding generator, and the consumption level of every
consumer. The target is to maximize the net social welfare. This
1226
function is performed in some electricity markets by the oper-
ator of the Power Exchange (PX), leaving feasibility and se-
curity matters to the Independent System Operator (ISO). The
market clearing procedure (MCP) applied by the Market Oper-
ator should 1) produce a feasible dispatch, 2) be transparent and
fair, and 3) maximize the net social welfare.
Therefore, the MO uses an MCP to determine the accepted
and nonaccepted energy bids that should be implemented by
the participants. The MCP in competitive electric power mar-
kets plays the role traditionally played by the unit commitment
tool in centralized noncompetitive power systems. The MCP
provides, for every hour of the market horizon
1) market clearing price, defined as the price of the most ex-
pensive accepted generating energy bid, although alterna-
tive definitions are possible;
2) set of committed and noncommitted units;
3) their corresponding power outputs.
To properly take into account inter-temporal constraints a
multiperiod market clearing procedure is needed. The data
required by the MCP is the bidding information provided by
the market participants. The economic bidding information
provided by any generating unit for every hour consists of a set
of energy blocks and their corresponding prices. A generator
may also complement this simple bid information declaring
a start-up price but it is not required to do so. The constraint
bidding information that any generating unit may provide for
every hour consists of
1) minimum up time;
2) minimum down time;
3) ramp-up limit;
4) ramp-down limit;
5) start-up ramp rate;
6) shut-down ramp rate.
The market clearing procedure should be transparent, fair,
simple to implement and to interpret, and nondiscriminatory. It
should promote economic efficiency and preserve the privacy
of the corporate information belonging to market participants:
generating companies (GENCOs) and consumers.
Market clearing procedures implemented in actual compet-
itive power markets differ significantly from one another. For
instance, the market clearing procedure of mainland Spain
[1] considers 1 h at a time and uses a simple economic
dispatch rule to clear the market. Inter-temporal constraints
are enforced ex post using again simple heuristic rules. The
independent consideration of every hour may result in inef-
ficient solutions. The procedure is transparent and easy to
understand and implement but it does not properly recognize
the technical constraints of the generating units. This MCP
is in fact a sequence of single-period auctions, with ex post
repair heuristics to enforce feasibility. Analogously, the new
market clearing procedure of England and Wales (NETA) is
a sequence of simple half hourly auctions, where the agents
can update dynamically their bids once the results of previous
periods are determined [2]. Generators are responsible for
their technical constraints, which are taken into account in the
bidding strategy. In every period mismatches are accounted
for through an energy imbalance settlement.
IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO. 4, NOVEMBER 2002
Lagrangian relaxation [3] can be used as a market clearing
rule. Reference [4], among others, suggests its use in com-
petitive markets. However, it presents relevant shortcomings
[5] associated to the fact that the problem which is solved is
the dual of the original problem (primal). The dual problem
usually has many very similar solutions in terms of objective
function value which are different in terms of scheduling vari-
ables. This may result in discrimination of some generators
versus others. Furthermore, heuristic manipulation of the dual
solution is required to attain a primal feasible solution and
this heuristic manipulation is difficult to audit.
Reference [6] proposes an alternative market clearing pro-
cedure for the electricity market of Norway and Sweden. This
new approach is a day-ahead multiperiod auction based on
heuristics to deal with the technical constraints (physical and
inter-temporal) of the thermal units.
The MCP presented in this paper is a day-ahead multiperiod
auction based on mixed-integer linear programming. The gen-
erating agents considered in this paper are thermal. As it is cus-
tomary in this type of models, the transmission network is not
considered. This MCP presents the following characteristics:
1) It is based on a sound, clearly established and transparent,
mathematical programming procedure: mixed-integer
linear programming, that guarantees to attain the optimal
solution.
2) No heuristic manipulation of the attained solution is
required.
3) The technical (physical and inter-temporal) constraints of
the power generating units are properly recognized and
precisely modeled.
4) The corporate information privacy of the GENCOs is
preserved.
5) Maximum net social welfare is achieved and therefore
economic efficiency is promoted.
The ultimate motivation of this paper is to provide the pool
operator with a market clearing tool to achieve maximum net so-
cial welfare while preserving participant corporate privacy and
taking into account generator operating constraints.
It should be noted that in terms of being gamed, the proposed
tool presents a better behavior than single-period tools as a con-
sequence of its sound mathematical foundation. It should also
be noted that no hypotheses are made on the characteristics of
the pool, i.e., the tool is valid for perfect as well as oligopolistic
pools.
The remainder of this paper is organized as follows. In Sec-
tion II, the problem is formulated in detail. This section in-
cludes a precise modeling of the physical and inter-temporal
constraints of the power generators. Computational considera-
tions related to the mixed-integer model proposed are provided
in Section III. In Section IV, results from realistic case studies
are presented and discussed. In Section V some relevant con-
clusions are drawn. Finally, the selling and buying energy bids
considered in Section IV are presented in Appendix.
II. FORMULATION
This paper presents a new market clearing procedure that
is a multiperiod auction including, among other features, a
ARROYO AND CONEJO: MULTIPERIOD AUCTION FOR A POOL-BASED ELECTRICITY MARKET 1227

precise model of minimum up and down time constraints,

and ramp rate limits. The novel formulation of the thermal
constraints used in this paper is explained in detail in [7].
The main differences of this formulation with respect to most
traditional formulations, e.g., [8], are 1) exact linear formulation
of the minimum up and down time constraints and 2) exact
linear formulation of the ramp rate limits. This procedure is
formulated as a mixed-integer linear programming problem.
For unit consistency, it should be noted that time periods of
1 h are considered.

A. Objective Function
The goal of the MO is to maximize the net social welfare, Fig. 1. Market equilibrium.
which is defined as the sum of the consumer surplus and the
producer surplus [9]. Fig. 1 shows the market equilibrium in one
Constraints (2) set the generating limits of each unit for each
period for elastic demand. For the multiperiod case the net social
period. The power output is enforced to be smaller than a new
welfare is defined as the sum over all the periods of the hourly
variable, , which represents the maximum available power
social welfares. An extra term may be subtracted to consider the
output of unit in period . This variable, which is explained in
start-up bidding prices (if different than zero) of units that are
Section II-B2, includes the effect of ramp rate limits.
started-up. Thus, the objective function to be maximized can be
Set of constraints (3) expresses the power output as the sum
expressed as
of the accepted energy blocks, which upper limits are imposed
by (4). This formulation of the bids implies for every unit that
the prices of the energy blocks are monotonically increasing.
Nonconvex bids can be easily modeled using additional binary
variables [7].
(1) 2) Maximum Available Power Output and Ramp Rate
Limits: Maximum available power output and ramp rate limit
constraints are formulated as follows:
In this equation, the first term is related to the buying energy
bids whereas the second term is related to the selling energy
bids, which can include a start-up bidding price.
It should be noted that if the producers do not bid at their re- (5)
spective marginal costs, the second term of the objective func-
tion (without start-up bids) is no longer the producer surplus (6)
but the “declared” producer surplus, and the objective function
is not, rigorously speaking, the net social welfare.
(7)
B. Thermal Constraints
where the capacity of every unit is equal to the sum of all its
The following expressions represent the set of constraints
related to every generating unit over the market horizon, i.e., bidding power blocks, i.e.,
power output limits, ramp rate limits, minimum up and down
times, and the logic of the start-up and shut-down status (a unit
cannot be online and offline at the same time).
1) Power Output Limits: The formulation of the power
output limits is as follows:
Constraints (5) and (6) set the upper limit of the maximum
(2) available power output taking into account
1) unit actual capacity;
(3) 2) start-up ramp rate limit;
3) shut-down ramp rate limit;
4) ramp-up limit.
(4) It should be noted that the maximum available power output
becomes zero if the unit is offline. Additionally, if the maximum
where the minimum power output of every unit is equal to its available power output meets ramp rate limits, so does the power
first bidding power block, i.e., output.
The set of constraints (7) imposes the ramp-down rate limit
as well as the shut-down ramp rate limit.
1228
Traditionally, ramp rate constraints have either been ignored
or modeled in a simplistic way as follows [8]:
(8)
(9)
Equations (8) and (9) do not model properly the start-up or the
shut-down of a unit, i.e., when it changes from offline to online
or vice versa. Note that constraints (8) force the power output to
be less than the ramp-up limit (instead of the start-up ramp rate)
if the unit is started-up, and analogously constraints (9) impose
the ramp-down limit (instead of the shut-down ramp limit) to the
power output in the period before the decommitment. However,
(5)–(7) precisely model the start-up and shut-down of the units
through the use of binary variables and specific start-up and
shut-down terms, respectively.
3) Minimum Up Time: Linear expressions of minimum up
time constraints, (10)–(12), are presented below. These equa-
tions are further described in [7]
(10)
(11)
(12)
where
Set of constraints (10) is related to the initial status of the
units. is the number of initial periods during which unit
must be online. If unit does not declare any initial status is
assumed equal to 0. Set of constraints (11) is used for the periods
following , and it ensures the satisfaction of the minimum
up time constraint during all the possible sets of consecutive
periods of size . Finally, set of constraints (12) is needed
for the last periods, i.e., if a unit is started-up in one of
these periods, it remains online during the rest of periods.
4) Minimum Down Time: Linear expressions of minimum
down time constraints, (13)–(15), are presented below. These
equations are further explained in [7]
(13)
(14)
(15)
IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO. 4, NOVEMBER 2002
where
Equations (13)–(15) are identical to (10)–(12) just by
changing , , and by , ,
and , respectively.
5) Logical Status of Commitment: Constraints (16) and (17)
are necessary to model the start-up and shut-down status of the
units and to avoid the simultaneous commitment and decommit-
ment of a unit [10]
(16)
(17)
C. Demand and Market Equilibrium Constraints
The demand and market equilibrium constraints are
(18)
(19)
Equation (18) set the upper limit of the hourly power con-
sumed in each block by each consumer. Set of constraints (19)
enforces the market equilibrium in each period.
D. Types of Variables
Variables used in the formulation are as follows:
(20)
(21)
(22)
(23)
(24)
Although three binary variable sets are used (representing
the commitment, shut-down and start-up states) only two of
them have to be defined as binary. Variables and
are defined as binary in (20), and since variables are
expressed as a linear function of and with discrete
coefficients 1 and 1 in (16), variables can be defined
as real variables belonging to the interval , as stated in
(21). This may reduce the computational burden of the model
proposed. Finally, constraints (22)–(24) state that the power
produced in each energy block, the power consumed in each
demanded block, and the maximum available power output
in every period are all positive variables.
III. COMPUTATIONAL CONSIDERATIONS
The problem formulated in Section II is large-scale, mixed-
integer and linear. Although the number of binary variables is
large, recent advances in mixed-integer linear programming al-
gorithms [11] allow the solution to such problems in a moderate
amount of computing time using a personal computer.
ARROYO AND CONEJO: MULTIPERIOD AUCTION FOR A POOL-BASED ELECTRICITY MARKET 1229

In order to provide insight on the dimension of the consid- TABLE I

ered problem, Table I shows an estimation of the number of DIMENSION OF THE MCP PROPOSED
constraints and variables. The number of constraints shown
in Table I represents an upper bound of the actual number
(worst case). This is so because the number of minimum up
and down time constraints depends on the initial status of each
unit. Additionally, it should be noted that an increase in the
number of blocks (either selling or buying energy bids) does TABLE II
not affect the number of binary variables or the number of DIMENSION OF A REALISTIC CASE STUDY (450 BUYING BIDS AND 1200
constraints. In fact, it only results in an increase in the number SELLING BIDS)
of real variables. Therefore, the computational burden does
not depend drastically on the number of blocks considered.
If it is assumed that all the units bid the same number
of energy blocks in every period, namely NL, and all the
consumers demand the same number of energy blocks in
every period, namely NO, the total number of real variables
becomes . Table II
shows the dimension of the problem for a realistic system
(such as the electricity market of mainland Spain [1] or the New
England Electricity Market [12]) consisting of 80 generators
and 30 consumers bidding 15 energy blocks each over a market
horizon of 24 periods, i.e., there are 1200 selling energy bids
and 450 buying energy bids in each period.

IV. NUMERICAL RESULTS

Results from five realistic case studies are reported in this sec-
tion. The first test case, case A, serves as the base case whereas
the remaining cases are expanded versions of it.
The data for the base case is based on the data of reference
[13]. The base case analyzed comprises 20 units and the market
horizon is one day divided into 24-h periods. The start-up
bidding price considered in the formulation is the sum of the
coefficients of the exponential start-up cost function in [13].
Ramp rates and initial conditions have been altered so that
the effect of inter-temporal constraints on the optimal solution
is illustrated. For instance, ramp up and ramp down rates for
units 3 and 4 have been reduced to 150 MW/h. Likewise,
unit 1 is considered to be initially offline for 22 h, so that
it will have to remain offline for the first two periods of the
time span considered in order to meet its minimum down
time requirement of 24 h. Each unit is allowed to submit bids
consisting of up to 4 energy blocks and their corresponding
energy prices, which can be found in Appendix. For the sake
of simplicity, and without loss of generality, the energy bids of
each unit are assumed to be constant over the market horizon.
Every unit may state its minimum up time, down time, and
ramping limits, although this is not a requirement. Minimum
up and down times, and ramp rate limits of each unit are
precisely modeled as stated in Section II.
This case study considers an aggregated demand comprising
all consumer demands. The aggregated demand consists of up to
4 energy blocks in each period with their corresponding prices,
which can also be found in Appendix.
Table III shows the results obtained from different case
studies using an optimality tolerance of 0 [11], i.e., the solution
tree is entirely searched. Each case study has also been run
without inter-temporal constraints to illustrate how these
Fig. 2. Evolution of the hourly market clearing price and the demand.
TABLE III
RESULTS
constraints affect the optimal solution in terms of objective
function value, production schedule and computing time. As
it can be noted the available solver is capable of achieving the
optimal solution of case A in 3.72 seconds. The optimal value
of the objective function is US$320 072.65. Fig. 2 shows the
evolution of the hourly market clearing price (solid line) versus
the demand (bars plot) for case A. It should be noted that, as
expected, the market clearing price follows the shape of the
demand curve. Table IV shows the accepted production and
consumption bids for case A, when inter-temporal constraints
are enforced. It should be noted that unit 1 is offline during
periods 1 and 2 to meet its minimum down time. Ramp down
constraints are active for unit 3 in periods 2 and 3, and for unit
4 in period 3. Moreover, ramp up constraints are active for unit
3 in periods 7 and 8.
Table V provides the accepted production and consump-
tion bids for case A when inter-temporal constraints are not
enforced. Note the changes in the schedules of units 1, 3, 4,
1230 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO. 4, NOVEMBER 2002

TABLE IV
ACCEPTED PRODUCTION AND CONSUMPTION BIDS (MW) WITH CONSTRAINTS

TABLE V
ACCEPTED PRODUCTION AND CONSUMPTION BIDS (MW) WITHOUT CONSTRAINTS

and 14 in periods 1, 2, and 3. Additional changes can be found
in the schedules of units 3, 4 and 8 in periods 7 and 8. The
effect of inter-temporal constraints on the objective function
value and the computing time is shown in Table III. It can be
noted that not considering inter-temporal constraints results
in an artificially higher social welfare and a decrease in the
computing time.
Cases B, C, D, and E are expansions of the base case. For
these cases the number of units is increased, and demand re-
quirements are also increased proportionally to the increase in
the number of units. The value of the objective function of the
optimal solutions is also shown in Table III, with and without
inter-temporal constraints. The computing times required to at-
tain these optimal solutions are moderate.
The model developed has been implemented on a SGI
R12000, 400 MHz based processor with 500 MB of RAM
using CPLEX 7.5 under GAMS [11].
V. CONCLUSIONS
A market clearing procedure for the Market Operator of
a pool-based electricity market for energy is proposed. This
market clearing procedure, which is a multiperiod auction,
preserves market participant corporate information privacy
while achieving maximum net social welfare. It models rig-
orously generator physical and inter-temporal constraints. It
is transparent and fair for all participants, and it is simple to
implement and to interpret. This procedure is formulated as a
ARROYO AND CONEJO: MULTIPERIOD AUCTION FOR A POOL-BASED ELECTRICITY MARKET
TABLE VI
STRUCTURE OF THE SELLING ENERGY BIDS
TABLE VII
STRUCTURE OF THE BUYING ENERGY BIDS
mixed-integer linear programming problem which is efficiently
solved using available optimization software in a moderate
amount of time. Different realistic case studies were analyzed
to appraise the functioning of the proposed procedure which
presents an accurate and efficient behavior.
1231
APPENDIX
See Tables VI and VII.
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José Manuel Arroyo (S’96–M’01) received the Ingeniero Industrial degree
from the Universidad de Málaga, Málaga, Spain, in 1995, and the Ph.D. de-
gree in power system operations planning from the Universidad de Castilla—La
Mancha, Ciudad Real, Spain, in 2000.
He is currently Assistant Professor of electrical engineering at the Uni-
versidad de Castilla—La Mancha. His research interests include operations,
planning and economics of electric energy systems, as well as optimization
and parallel computation.
Antonio J. Conejo (S’86–M’91–SM’98) received the B.S. degree from the Uni-
versidad P. Comillas, Madrid, Spain, in 1983, the M.S. degree from the Massa-
chusetts Institute of Technology, Cambridge, in 1987, and the Ph.D. degree from
the Royal Institute of Technology, Stockholm, Sweden, in 1990, all in electrical
engineering.
He is currently Professor of electrical engineering at the Universidad de
Castilla—La Mancha, Ciudad Real, Spain. His research interests include
control, operations, planning and economics of electric energy systems, as well
as optimization theory and its applications.