Power System Optimization

Chapter 7Modeling and Analysis of Electricity Markets

7.1 Oligopolistic Electricity Market Analysis Based on Coevolutionary Computation

In recent years different equilibrium models have been used in the analysis of strategic interaction between participants in an electricity market, including the oligopoly models of Cournot, Bertrand, and Stackelberg, supply function equilibrium (SFE), and collusion [255, 256]. Among them the Cournot and SFE models are the most extensively used models for analyzing pool-based electricity markets.

The Cournot oligopoly model assumes that strategic firms employ quantity strategies: each strategic firm decides its quantity to produce, while treating the output level of its competitors as a constant. Hogan [257] and Cardell et al. [258] apply the Cournot quantity approach to a single-period market trading. The market model developed exploits the standard approach to interpreting a market equilibrium as defining the first-order conditions for a related optimization problem. Borenstein and Bushnell [259] simulate the California electricity market after deregulation as a static Cournot market with a competitive fringe. The model indicates the potential for significant market power in high demand periods. They discuss the weaknesses of concentration measures as a viable measure of market power in the electricity industry, and propose a market simulation approach based on Cournot–Nash concept [260]. The Cournot equilibrium in a transmission-constrained ...