Pricing in Multi-Interval Real-Time Markets

This paper examines multi-interval real-time markets in the context of US. independent system operators (ISOs). We show that current ISO implementations that settle only the upcoming interval of the multi-interval solution can create incentive problems. Fundamentally, this is the result of each successive optimization problem treating historical losses as sunk costs. To solve the incentive issues, we present an existing proposal and a new multi-interval pricing method. Both methods incorporate historical losses and produce prices that appropriately incentivize generators to follow multi-interval dispatch instructions when implemented with a fixed finite horizon and perfect foresight. In practice, the fixed horizon requirement necessary for this result is not satisfied because new information about the future is constantly being revealed to the ISO as time proceeds. Realistic rolling horizon implementations for an ISO New England-based system suggest that the new method results in lower out-of-market payments than both current ISO implementations and the existing proposal.