A fast-start resource in an ISO’s market could submit an offer with three cost components: an incremental energy cost curve, a no-load cost, and a start-up cost.

The ISO could commit and dispatch these resources in the current dispatch interval of its Real-Time Market to satisfy demands and ancillary service requirements. No-load costs are incurred and fixed as long as the resource is running, while start-up costs are incurred when the resource is started. Only the incremental energy costs change with the dispatch and so could set prices.

Since commitment and dispatch decisions for fast-start resources are made in roughly the same time frame, the ISO wanted to develop an approach that let all bid cost components of a fast-start resource set price when the cost of committing and dispatching the fast-start resource is the highest cost action taken. Allowing such costs to set prices can potentially improve price signals and increase incentives to bid true costs.

The ISO’s existing pricing approach set prices using the Lagrangian dual of the Security Constrained Economic Dispatch (SCED) in which commitment decisions were held fixed. We showed that prices from the Lagrangian dual of the Security Constrained Unit Commitment (SCUC) mixed integer optimization problem produced prices that could incorporate start-up costs, no-load-costs, and incremental energy costs.

We showed that using these prices in settlements would minimize the side-payments required to give participants the incentive to participate in the ISO’s market and to follow the ISO’s commitment and dispatch instructions.

Applying cooperative game theory, we showed that the prices would also improve incentives for participants to provide bids based on their true costs to maximize their profits.

To reduce computational requirements, we developed an integer-relaxation of the SCUC and used prices from its Lagrangian dual which we called Extended Locational Marginal Pricing (ELMP). We investigated the properties of ELMP and demonstrated that the results had acceptable performance.

The ISO implemented ELMP for fast-start resources and found that the resulting prices reduced uplifts and improved price signals in its Real-Time Market. Later, FERC ordered the other ISOs to investigate implementing fast-start pricing in their markets.