5. Strategic price-setting by the network operator (original) (raw)
Electric Power Network Oligopoly as a Dynamic Stackelberg Game
2016
Over the last two decades, the electricity industry has shifted from regulation of monopolistic and centralized utilities towards deregulation and promoted competition. With increased competition in electric power markets, system operators are recognizing their pivotal role in ensuring the efficient operation of the electric grid and the maximization of social welfare. In this article, we propose a hypothetical new market of dynamic spatial network equilibrium among consumers, system operators and electricity generators as solution of a dynamic Stackelberg game. In that game, generators form an oligopoly and act as Cournot-Nash competitors who non-cooperatively maximize their own profits. The market monitor attempts to increase social welfare by intelligently employing equilibrium congestion pricing anticipating the actions of generators. The market monitor influences the generators by charging network access fees that influence power flows towards a perfectly competitive scenario. Our approach anticipates uncompetitive behavior and minimizes the impacts
An electricity market game between consumers, retailers and network operators
Decision Support Systems, 2005
We consider a simple game-theoretical model in which an electricity retailer and a network owner offer incentives to consumers to shift load from a peak period to an off-peak period. Using a simple example, we compare the market outcomes from collusion with those from the equilibrium of a non-cooperative game and examine the behaviour in this game when it is repeated in a situation in which agents have imperfect information. D
IET Generation, Transmission & Distribution, 2010
Competition has been introduced in the electricity markets with the goal of reducing prices and improving efficiency. The basic idea which stays behind this option is that, in competitive markets, a greater quantity of the good is exchanged at a lower and stable price, leading to higher market efficiency. Electricity markets are different from other commodities mainly because of the operational characteristics, perishability and lack of large storage capability, which may impact the market performances. The network structure of the system on which the economic transactions need to be undertaken poses strict physical and operational constraints. Those physical and operational constraints need to be ensured to guarantee an operating state feasible and when those constraints binding the congested system show remarkable economic impacts. Strategic interactions among market participants with the objective of maximising their surplus must be taken into account when modelling competitive electricity markets. The network constraints, specific of the electricity markets, provide opportunity of exercising strategic behaviour of the market participants. Game theory provides a tool to model such a context. This study provides a comparative analysis of the application of game theory models to network constrained electricity markets with the focus on the strategic behaviour of the electricity producers. Different models such as supply function equilibrium, Cournot, Stackelberg and conjecture supply function are considered and their appropriateness to model the electricity markets is discussed. Under network constraints with reference to the IEEE 30-and IEEE 57-bus test systems, various models are compared in quantitative way to provide analysis of the market performance under different representation of the oligopoly competition in the electricity markets.
Impact of generators' behaviors on Nash equilibrium considering transmission constraints
European Transactions on Electrical Power, 2009
In imperfect competition, electricity markets with transmission constraints and limited number of producers, generation companies (GenCos) are facing an oligopolistic market rather than perfect competition. In this market each GenCo may increase its own payoff through strategic bidding. This paper investigates the problem of developing optimal bidding strategies of GenCos considering participants' market power as well as transmission constraints. The problem is modeled as a bi-level optimization that at the first level each GenCo maximizes its payoff through strategic bidding, while at the second level, an independent system operator (ISO) dispatches power, solving an optimal power flow (OPF) problem. The objective of proposed optimization model is generating optimal bidding strategies for GenCos, while satisfying transmission constraints. Different aspects of exercising market power are studied and the corresponding effects on Nash equilibrium and GenCos' characteristics are proposed. Finally, the interaction of participants' different bidding strategies is investigated. An IEEE-30 bus test system is used for case study to demonstrate simulation results.
Externalities in the games over electrical power transmission networks
2011
An electrical transmission network consists of producers, consumers and the power lines connecting them. We build an ideal (lossless) DC load ow model as a cooperative game over a graph with the producers and consumers located at the nodes, each described by a maximum supply or desired demand and the power lines represented by the edges, each with a given power transmission capacity and admittance value describing its ability to transmit electricity.
Transmission cost allocation by cooperative games and coalition formation
IEEE Transactions on Power Systems, 2002
The allocation of costs of a transmission system to its users is still a pending problem in many electric sector market regulations. This paper contributes with a new allocation method among the electric market participants. Both cooperation and competition are defined as the leading principles to fair solutions and efficient cost allocation. The method is based mainly on the responsibility of the agents in the physical and economic use of the network, their rational behavior, the formation of coalitions and cooperative game theory resolution mechanisms. The designed method is applicable to existing networks or to their expansion. Simulations are made with sample networks. Results conclude that adequate solutions are possible in a decentralized environment with open access to networks. Comparisons with traditional allocation systems are shown, cooperative game solutions compare better in economic and physical terms.
Energy Markets: Optimization of Transmission Networks
Computational Mathematics and Modeling, 2019
An energy transmission system is usually a part of every energy market. The problem of optimizing transmission system to maximize the social welfare is the subject of the present paper. For energy markets with tree-type network structures, an approach to optimizing their transmission systems is developed based upon the concept of competitive and complementary network lines. Also, a method for the supply-demand balances transfer to the root node of the network is discussed. Finally, the problem of optimally developing an energy transmission system up to a given planning horizon is discussed.
RePEc: Research Papers in Economics, 2005
Competition has been introduced in the electricity markets with the goal of reducing prices and improving efficiency. The basic idea which stays behind this choice is that, in competitive markets, a greater quantity of the good is exchanged at a lower and a lower price, leading to higher market efficiency. Electricity markets are pretty different from other commodities mainly due to the physical constraints related to the network structure that may impact the market performance. The network structure of the system on which the economic transactions need to be undertaken poses strict physical and operational constraints. Strategic interactions among producers that game the market with the objective of maximizing their producer surplus must be taken into account when modeling competitive electricity markets. The physical constraints, specific of the electricity markets, provide additional opportunity of gaming to the market players. Game theory provides a tool to model such a context. This paper discussed the application of game theory to physical constrained electricity markets with the goal of providing tools for assessing the market performance and pinpointing the critical network constraints that may impact the market efficiency. The basic models of game theory specifically designed to represent the electricity markets will be presented. IEEE30 bus test system of the constrained electricity market will be discussed to show the network impacts on the market performances in presence of strategic bidding behavior of the producers.
Computing Two-settlement Equilibrium in a Transmission-Constrained Oligopolistic Electricity Market
2006 IEEE PES Power Systems Conference and Exposition, 2006
I. PANEL PRESENTATION SUMMARY Electricity restructuring aims at creating new competitive environments that provide long-term consumer benefits. A major obstacle to this goal is market power, both vertical and horizontal. Vertical market power in electricity markets has been substantially mitigated through the unbundling of the generation, transmission and distribution sectors, and through "open access" to transmission grids. However, horizontal and locational market power remains an important issue to policy markers due to the non-storability of electricity, the lack of demand elasticity, the high market concentration and the limited transmission network capacities. Among the many proposed and implemented economic means of mitigating horizontal market power is a two-settlement approach where forward contracts and real-time balancing transactions are settled at different prices. Both theoretical analysis and empirical evidences have suggested that forward contracting decreases the incentives of sellers to manipulate spot market prices since, under a two-settlement approach, the volume of trading that can be affected by spot price manipulation is reduced. The critical question, however, has been whether sellers will have the incentive to enter into forward contracts that mitigate their ability to exercise market power and hence reduce their total profits. This question has been address in a seminal paper by Allaz [1] that assumes a two-period market and demonstrated that, if all producers have access to a forward market, it leads to a prisoners' dilemma type of game among them. In that game it is a dominant strategy for each seller to enter into forward contracts although the resulting equilibrium yields lower profits for each supplier as compared to equilibrium without forward contracts. Allaz and Vila further show that, as the number of forward trading periods increases, producers lose their ability to raise energy prices above their marginal cost.