Market clearing priceMCP

In a uniform-price auction, the operator builds a supply curve by stacking every sell offer from lowest price to highest. It builds a demand curve by stacking every buy bid from highest price to lowest. The two curves cross at one point. That point gives the clearing price for the block, in $/MWh, and the volume that clears.

Every offer priced at or below the clearing price is accepted, and so is every bid at or above it. All accepted sellers are paid the clearing price, including those who offered at zero. All accepted buyers pay it, including those who bid much higher. The last offer needed to meet demand is the marginal offer, and its price usually sets the clearing price. Since sellers are paid the marginal price whatever they offer, the incentive is to offer close to their own running cost. A wind or solar plant, with almost no fuel cost, can offer very low and still earn a price set by a gas plant.

The clearing price is what a merchant plant earns, so it is the figure a revenue model has to forecast. It depends on which plant sits at the margin in each block, and hardly at all on the project's own costs. As more solar enters a market, solar sets the price more often around midday and pulls midday prices down. This effect, called cannibalisation, reduces what each additional solar plant earns.

India's exchanges set one clearing price across the country unless inter-regional links are congested, when the market splits into bid areas with their own prices. Europe's coupled auction sets one price per bidding zone, often a whole country. US markets price energy by location instead, so the clearing price varies node by node, and a single figure usually refers to a hub or zone average.