The Role of Strategic Load Participants in Two-Stage Settlement Electricity Markets

Two-stage electricity market clearing is designed to maintain market efficiency under ideal conditions, e.g., perfect forecast and nonstrategic generation. This work demonstrates that the individual strategic behavior of inelastic load participants in a two-stage settlement electricity market can deteriorate efficiency. Our analysis further implies that virtual bidding can play a role in alleviating this loss of efficiency by mitigating the market power of strategic load participants. We use real-world market data from New York ISO to validate our theory.