Carbon-based bidding structure in competitive electricity markets

With changes to carbon output imminent as a result of governmental policies, the method by which energy generators in competitive markets are selected for operation can be called into question. We first simulated a bid-based day-ahead market with human participants and then analyzed generation asset owners' profits based on bid strategy. We then studied computing generator unit dispatch for this simulated market by introducing an environmental index related to the carbon intensity of the relevant fuel type, and computing dispatch via linear programming to either maximize or minimize this index subject to the constraint that average profits be the same as in the original market simulation. The results show that lower bids, even below cost, are most profitable for generators, and that adding an environmental weighting to the bid process has the potential to reduce carbon intensity of power generation without reducing overall average profitability to generators or increasing cost to consumers. This research concludes an environmental score should be explored as a potential weighting factor in bid-based electricity market dispatch.