A Comparison of Pay-As-Bid and Market-Clearing Price Bidding Processes in Electric Utility Auctions



As the electric utility industry moves to Regional Transmission Organizations, there are more opportunities for merchant plants in selling wholesale energy to electric utilities. Two alternative bidding regimes are considered: (i) pay-as-bid and (ii) pay with market-clearing bid. With stochastic price-sensitive demand, we show that pay-as-bid has greater average price, but lower price variance than does market-clearing price. Copyright © 2013 John Wiley & Sons, Ltd.