Mitigation of price spike in unit commitment: A probabilistic approach

Highlights: • A problem in Latin America's markets related to high-volatility trend of electricity markets marginal costs and prices spikes is studied. • Price spikes mitigation within the Short-Term Operational Planning (Unit Commitment) is obtained using the proposed methodology. -- Abstract: During the last decade, electricity markets regulators in Latin American countries have been concerned about the increasing costs of electrical energy. To this end, regulatory changes have been introduced to develop new criteria for price sanction, which demonstrates the need to study this problem at the fundamental level. Until now, the alternatives proposed and implemented have been aimed at modifying the way in sanctioning short-term energy prices, moving away from the rigorous application of the marginal cost theory. This situation can be considered as the evidence that the characteristics of Latin American electricity markets differ significantly from the ideal conditions that are necessary for the application of this conceptual framework. This paper presents a methodology for establishing a metric for energy tariff's risk which is used in a procedure to mitigate price spikes in the process of the Short-Term Operational Planning (Unit Commitment). The proposed methodology considers the most widely-used mechanisms for the sanction of real-time (spot) market prices in Latin America, which are based on the variable production costs. The results from the application of this methodology to a test power system with hydrothermal and non-conventional (wind) energy resources show an effective reduction of price volatility.