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

Comparative analysis of game theory models for assessing the performances of network constrained electricity markets

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.

Generation strategies for gaming transmission constraints: will the deregulated electric power market be an oligopoly

Decision Support Systems, 1999

Constrained transmission lines are known to be able to economically isolate submarkets from the competition of players located elsewhere on the network. This paper examines the type of oligopolistic competition that is likely to take place in these submarkets. It shows, using simple models, how static or intertemporal Nash equilibria can rise in a framework of price or supply function competitions, found to be more realistic than Cournot models in the particular case of short term competition in the electric power market. This paper shows also how transmission constraints can play a direct role in the outcome of the oligopolistic competition and encourage strategic behavior by the generators. Transmission lines that would not be constrained if the players did not know of their thermal limits may be strategically driven to operate at these limits in order to maximize the profits of the players who have market power, leaving the others to cope with the consequences of such behavior.

Dynamic games in the wholesale electricity market

2008 5th International Conference on the European Electricity Market, 2008

In this paper, we analyze infinite discrete-time games between hydraulic and thermal power operators in the wholesale electricity market. Two types of games are considered: Cournot closed-loop game and Stackelberg closed-loop game. W e consider a deregulated electrical industry where certain demand is satisfied by hydraulic and thermal technologies. The hydraulic operator decides the production in each season of each period that maximizes the sum of expected profit from power generation with respect to the stochastic dynamic constraint on the water stored in the dam, the environmental constraint and the non-negative output constraint. In contrast, the thermal plant is operated with quadratic cost function, with respect to the capacity production constraint and the non negativity output constraint. This paper is devoted to the numerical computations of equilibrium strategies and value function in each kind of games. We show that under imperfect competition, the hydraulic operator has a strategic storage of water in the peak season. Then, we quantify the strategic inter annual and intra annual water transfer in the both games and we compare the numerical results. Under Cournot closed-loop game, we show that the traditional principle of least-cost operation is inverted at the binding capacity constraint of thermal operator. Finally, under Stackelberg closed-loop game, we show that thermal operator can restrict the hydraulic output without compensation. The technical complementarities and Stackelberg competition may distorted the traditional "merit order" operating principal.

Monopolistic Competition in Electricity Networks

SSRN Electronic Journal, 2000

We model a centralized electricity market in which generators bid prices in a sealed bid form and are dispatched by an independent system operator (ISO). The ISO allocates production to minimize the system costs while considering the transmission constraints. In a departure from received literature, the model incorporates explicit description of the network details.

Transmission augmentation in an oligopoly electricity market-part I (mathematical formulation)

2008

This paper proposes a Three-Stage Model for transmission augmentation in restructured electricity markets. The mathematical formulation of the model is developed based on the game theory. Transmission Network Service Provider, TNSP, Generating Companies, GenCos, and Market Management Company, MMC, are placed in different stages of the model. These stages are linked to each other using the Leader-followers game and the concept of Nash equilibriums. An increase in transmission capacity can have two benefits for the electricity market; firstly, efficiency benefit in terms of improving the social welfare of the electricity industry, and, secondly, competition benefit which leads to increasing competition among generating companies. The introduced Three-Stage Model can capture both benefits of transmission projects in electricity markets. An effective numerical method is designed for solving the developed Three-Stage Model. A modified IEEE 14 example system is employed to show the effectiveness of the methodology. This paper has been organized in two parts. First part deals with the mathematical formulation of the algorithm and second part deals with the numerical studies. What follows is the first part of the paper.

Analysis of electricity market rules and their effects on strategic behavior in a noncongestive grid

IEEE Transactions on Power Systems, 2000

Earlier work has discussed the potential for strategic bidding in deregulated electricity markets, and shown specifically how generators can take advantage of congestion in their strategy. We show that it is also possible for even mid-price suppliers to create congestion problems through gaming in a non-congestive system. Under auction mechanisms such as in the United Kingdom, this can be profitable, at the consumer's expense. The optimal auction prevents profitable gaming, but requires the simultaneous handling of market clearing and system dispatch, making it harder to ensure the neutrality of system operations.