Promoting the electricity price reform

and constructing a “fair

open

organized

competitive and complete” electricity market are critical tasks confronted by the new-round electric power system reform of China. At present

the foreign electricity markets generally adopt locational marginal prices(LMPs)for electricity market clearing. However

the existing theory and practice demonstrate that LMPs cannot incentivize market participants to be truth-telling

and cannot solve the problem of information asymmetry. To incentivize market participants to truthfully bid and thereby achieve an optimal allocation for electrical resources

a competitive mechanism in electricity markets is proposed based on fair benefit allocation. Firstly

the phenomenon and reason why the LMP mechanism cannot elicit truthful information while leading to market efficiency loss are analyzed. Then based on Vickrey-Clarke-Groves(VCG)theory

a fair benefit allocation mechanism is proposed for day-ahead electricity markets

and it is proved that the proposed mechanism satisfies the properties of incentive compatibility

individual rationality and system cost minimization. The economic meaning why the proposed mechanism satisfies incentive compatibility is also explained. Case studies based on IEEE 30-bus and 118-bus systems validate the effectiveness of the proposed mechanism.