Settlement Mechanisms in The Day-Ahead Electricity Market: A Comparative Analysis of European Countries, The United States, and China

Xueshan Lin; Xishuang Wu; Yongjian Li; Xin Liu; Jianxiong Shi; Xing Huang; Shaohua Yang

doi:10.59717/ipj.energy-use.2026.100055

Energy Use > 2026 Vol. 2 > No. 2 > 100055

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Settlement Mechanisms in The Day-Ahead Electricity Market: A Comparative Analysis of European Countries, The United States, and China

1.
State Key Laboratory of Intelligent Power Distribution Equipment and System. Hebei University of Technology, Tianjin 300401, China
2.
Economic and Technological Research Institute of State Grid Tianjin Electric Power Company, Tianjin 300010, China
3.
Shijiazhuang Power Supply Branch of State Grid Hebei Electric Power Co., Ltd, Shijiazhuang 050022, China
4.
College of Electrical Engineering, Zhejiang University, Hangzhou 310027, China
5.
Energy and Transportation Domain, Beijing Institute of Technology, Zhuhai 519088, China

Fund Project: This work is supported by the Scientific Research Project of Higher Education Institutions in Hebei Province (QN2026569).

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Corresponding authors: liyongjian@hebut.edu.cn (Y. L.); 12210067@zju.edu.cn (X. H.); shaohuayang@bit.edu.cn (S. Y.)
Received Date: May 07, 2026

Accepted Date: June 22, 2026

Published Online: June 25, 2026

Energy Use 2(2), https://doi.org/10.59717/ipj.energy-use.2026.100055 | Cite this article

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GRAPHICAL ABSTRACT

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PUBLIC SUMMARY

PUBLIC SUMMARY
1. Deep RES integration demands rational DA settlement rules; a 3D framework evaluates UP, ZP, LMP, HP on efficiency, investment incentives and operation costs.
  
  No universally optimal settlement mechanism; its performance relies heavily on specific power system physical conditions.
  
  ZP boosts liquidity with adequate transmission capacity, but causes cross-subsidies and higher re-dispatch costs under high RES penetration.
  
  LMP delivers granular grid constraint signals, reduces renewable curtailment and remarkably raises overall social welfare.
  
  HP guarantees demand-side price stability for transitional markets; SM design must match grids, resources and market reform stages.

ABSTRACT

ABSTRACT

As the integration of renewable energy sources (RES) deepens, selecting an appropriate day-ahead (DA) market settlement mechanism (SM) becomes critical for balancing system efficiency and economic viability. This paper proposes a multi-dimensional quantitative evaluation framework to assess four typical SMs—Uniform Pricing (UP), Zonal Pricing (ZP), Locational Marginal Pricing (LMP), and Hybrid Pricing (HP)—across three core dimensions: short-term market efficiency, long-term investment incentives, and system operation costs. Through comparative analysis and numerical simulations in typical scenarios, the results show that no universally optimal SM exists independent of the physical system's conditions. Specifically, ZP enhances market liquidity in systems with sufficient transmission capacity but tends to obscure local bottlenecks under high-RES penetration, leading to implicit cross-subsidization and increased re-dispatch costs (RCs). In contrast, LMP internalizes network constraints through granular spatiotemporal price signals, effectively reducing RES curtailment and improving overall social welfare (SW). For transitioning markets requiring demand-side price stability, HP offers a practical compromise. Overall, SM design should be closely aligned with grid topology, resource endowments, and the stage of market reform.
- RES /
- DA market /
- settlement mechanism /
- social welfare

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Lin X., Wu X., Li Y., et al. (2026). Settlement Mechanisms in The Day-Ahead Electricity Market: A Comparative Analysis of European Countries, The United States, and China. Energy Use 2:100055. https://doi.org/10.59717/ipj.energy-use.2026.100055

Lin X., Wu X., Li Y., et al. (2026). Settlement Mechanisms in The Day-Ahead Electricity Market: A Comparative Analysis of European Countries, The United States, and China. Energy Use 2:100055. https://doi.org/10.59717/ipj.energy-use.2026.100055

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