Market power mitigation in the Colombian electricity market through on-site generation and demand response

Abstract

This article evaluates the active demand-side participation in the Colombian electricity market as a strategy to mitigate the apparently market power. Real energy and price offers from years 2000 to 2014 are used to characterize the supply curves of the model. The model is developed as a potential game where the strategies available are each of the firms (mostly hydro-based) that are supposed to behave strategically. A replicator dynamics approach is used to obtain the Nash equilibrium of the game. The results show that for acceptable levels of demand-side participation the energy price is reduced in approximately 58% when firms have the opportunity to exercise market power. With an additional model based on time-of-use (TOU) prices it is borne out the fact that an active demand-side participation helps improving the market efficiency reducing the ability to exercise market power, among others.