System Value Settlement
Traditional electricity markets compensate generators primarily according to the amount of energy they produce.
A generator producing one megawatt-hour receives the same wholesale market price regardless of where that energy was generated or how useful it was to the wider electricity system.
This assumes that every unit of energy has identical value.
Modern electricity systems increasingly demonstrate that this assumption is false.
Not all megawatt-hours are equal
Consider two identical wind farms.
Both produce exactly 100 MW.
The first is located beside a city experiencing high demand and limited transmission capacity.
Every megawatt it generates directly serves consumers.
The second is located behind an already congested transmission corridor.
Much of its generation must be curtailed because the network cannot transport it.
Both generators produce identical energy.
Their contribution to the electricity system is very different.
Measuring System Value
Rather than rewarding generators according to energy production alone, FP-AMM rewards generators according to the additional demand they enable the system to serve.
The characteristic function therefore becomes
[ v(S)
\text{Maximum demand that coalition }S\text{ can reliably serve.} ]
Every coalition of generators is evaluated.
Removing a generator may reduce the amount of demand that can be served.
The size of that reduction represents the generator's contribution.
Generators that consistently increase the system's ability to serve consumers receive larger Shapley Values.
A simple example
Suppose three generators exist.
- Generator A is a large wind farm.
- Generator B is a local gas turbine.
- Generator C is a battery.
The amount of demand each coalition can reliably serve is
| Coalition | Demand Served |
|---|---|
| ∅ | 0 MW |
| A | 400 MW |
| B | 300 MW |
| C | 200 MW |
| A+B | 800 MW |
| A+C | 850 MW |
| B+C | 700 MW |
| A+B+C | 1000 MW |
The Shapley Value evaluates every possible ordering in which these generators could join the system.
For each ordering, the additional demand served when a generator joins is recorded.
The average of these marginal contributions determines each generator's settlement.
Why this matters
This approach naturally rewards characteristics that today's markets largely ignore.
Generators receive greater compensation when they
- generate during periods of scarcity,
- are located where demand exists,
- relieve transmission constraints,
- improve reliability,
- complement other resources.
The settlement therefore reflects system value rather than simply energy production.
This aligns generator incentives with the needs of consumers and the electricity system.