Title: Cournot equilibria in two-settlement electricity markets with system contingencies

Authors: Jian Yao, Shmuel S. Oren, Ilan Adler

Addresses: Department of Industrial Engineering and Operations Research, University of California, Berkeley, CA 94720, USA. ' Department of Industrial Engineering and Operations Research, University of California, Berkeley, CA 94720, USA. ' Department of Industrial Engineering and Operations Research, University of California, Berkeley, CA 94720, USA

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.

Keywords: electricity markets; two settlements; Cournot equilibria; equilibrium problems; equilibrium constraints; critical infrastructures; electricity infrastructures; EPNES; efficiency; security.

DOI: 10.1504/IJCIS.2007.011549

International Journal of Critical Infrastructures, 2007 Vol.3 No.1/2, pp.142 - 160

Published online: 01 Dec 2006 *

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