Every morning, Israel's System Operator (Noga) runs a day-ahead auction. Generators submit their offers (how much electricity they can produce and at what price), and the system determines the cheapest way to meet tomorrow's demand.

The result is a dispatch schedule: which generators run during each half-hour interval and at what output level. The price that emerges from this process is the Market Clearing Price (MCP).

This is a uniform pricing system. Every dispatched generator receives the same MCP, regardless of their individual bid. The MCP equals the cost of the most expensive generator needed to meet demand, the "marginal unit."

The auction is solved as a Mixed-Integer Linear Program (MILP). "Mixed-integer" means the solver works with two types of decisions simultaneously:

• Continuous variables: how much power each generator produces (e.g., 350.5 MW)
• Binary variables: whether a generator is on or off (1 or 0)

The objective is to minimize total generation cost while satisfying all system constraints. The solver considers thousands of variables and constraints across all 48 half-hour intervals of the next day.

This is what makes the problem hard, and interesting. A simple merit-order stack can't capture the real-world physics of power plants that take hours to start up, have minimum output levels, or face fuel delivery limits.

How is the electricity price actually determined? Once the solver decides which generators run, the Market Clearing Price (MCP) is set by asking one question: if we needed one more megawatt right now, who would supply it and at what cost? That generator, the marginal unit, sets the price for everyone.

This works cleanly when all generators compete on cost alone. But Israel's regulator chose to put additional values into the system. Environmental policy requires coal plants to dispatch last, regardless of their low cost, a deliberate decision to phase out coal even though it's cheap. Energy security concerns mean that when gas pipelines fail or hit capacity, the market doesn't punish consumers with diesel-level prices for a problem they didn't cause. These regulatory choices mean the basic pricing rule needs exceptions. There are 7 scenarios that govern how the MCP is actually set: