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The auctioneer opens the auction at a price equivalent to two times the Cost of Entrant; a value calculated by the CREG and made known to the bidders (generators and investors) before the auction. Likewise, the auctioneer announces the floor price at which this first round will close. |
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Between these two prices the bidders build their firm energy supply curve and this information is sent to the ASIC, the auction administrator. |
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The ASIC receives all the supply curves and based on these, builds an aggregate supply curve. The ASIC plots this aggregate supply curve with the aggregate demand curve and it calculates the resulting excess supply at the previously determined floor price and conveys this information to the auctioneer. |
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Based on this, the auctioneer determines the floor price of the next round, which is lower than the previous one. The auctioneer announces the new floor price and the excess supply to the bidders. |
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The bidders send their second firm energy supply curves, this time between the floor price of the last round and the new floor price, and eliminates their generation plants and units which will not supply firm energy at these new prices. An important feature of this auction is that suppliers can only maintain or reduce quantity as price falls, or in other words, the quantity offered is consistent with an upward sloping supply curve. |
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This process continues until the excess of supply over demand becomes minimal. |
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The point where supply and demand balance is the clearing price of the auction, and therefore, will be the price to be paid to all the OEFs that are allocated to the selected generators to cover the demand (Figure 3). |
