Cournot equilibria in two-settlement electricity markets with system contingencies
by Jian Yao, Shmuel S. Oren, Ilan Adler
International Journal of Critical Infrastructures (IJCIS), Vol. 3, No. 1/2, 2007

Abstract: We study Nash equilibrium in two-settlement competitive electricity markets with horizontal market power, flow congestion, demand uncertainties and probabilistic system contingencies. The equilibrium is formulated as a stochastic Equilibrium Problem with Equilibrium Constraints (EPEC) in which each firm solves a stochastic Mathematical Programme with Equilibrium Constraints (MPEC). We assume a no-arbitrage relationship between the forward prices and the spot prices. We find that, with two settlements, the generation firms have incentives to commit forward contracts, which increase social surplus and decrease spot energy prices. Furthermore, these effects are amplified when the markets become less concentrated.

Online publication date: Fri, 01-Dec-2006

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