I was wondering why the supply curve of a power plant in the auction for the Day-Ahead Market is stepwise increasing and not a continuous function with first and second derivative strictly positive. I am thinking of a gas plant (CCGT), the amount of fuel to be used can be adjusted continuously and not discretely, am I wrong?

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    $\begingroup$ Since prices are quantized, can’t meet the formal definition of continuous. After that, it might just come down to the preferences of whoever is managing the pricing at the plant as to how many pricing points they want to use. Without details of the auction process, the odds of anyone here knowing the answer is low. $\endgroup$ – Brian Romanchuk Oct 20 '20 at 13:54
  • $\begingroup$ Thank you for your comment. I was wondering why they would do a choice like this since, from a mathematical point of view, it requires to solve a non-convex optimization when looking for the intersection of supply and demand $\endgroup$ – Virginie Oct 21 '20 at 14:43
  • $\begingroup$ I don’t know anything about electricity auctions, but surely it’s a fairly simple algorithm once all orders are entered? Or are you referring to the utility’s profit calculation? $\endgroup$ – Brian Romanchuk Oct 21 '20 at 14:49

One minor point- it could be that the factory schedules labor and other factors of production (coal deliveries, etc) in daily increments, and therefore pricing is fixed within each increment.


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