Ali Hortacsu

We propose an inverse optimization-based methodology to determine market structure from commodity and transportation prices. The methods are appropriate for locational marginal price-based electricity markets where prices are shadow prices in the centralized optimization used to clear the market. We apply the inverse optimization methodology to outcome data from the Midcontinent ISO electricity market (MISO) and, under noise-free assumptions, recover parameters of transmission and related constraints that are not revealed to market participants but explain the price variation. We demonstrate and evaluate analytical uses of the recovered structure including reconstruction of the pricing mechanism and investigations of locational market power through the transmission constrained residual demand derivative. Prices generated from the reconstructed mechanism are highly correlated to actual MISO prices under a wide variety of market conditions. In a case study, the residual demand derivative is shown to be correlated with coefficients of certain transmission constraints.

Areas of Focus: Energy Markets
Definition
Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Electric Power
Definition
Electric Power
As the electric power system faces new pressures and opportunities, EPIC research is working to identify the mix of policies needed to accelerate the global transition to clean, reliable, affordable...
Transportation
Definition
Transportation
Mobility is central to economic activity. Yet, a lack of fuel diversity and continued demand growth have made the transportation industry a major contributor to global pollution and carbon emissions....