Monopolistic competition in electricity networks with resistance losses

Abstract

We consider a pool type electricity market in which generators bid prices in a sealed bid form and are dispatched by an independent system operator (ISO). In our model, demand is inelastic and 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. The analysis shows that losses along transmission lines render the market imperfectly competitive. Indeed, it is shown that competition among generators is qualitatively similar to the interaction among firms in a monopolistic competition setting. A lower bound for market prices is derived and it is shown that the costumers' cost of oligopolistic pricing is strictly positive. At a methodological level, we generalize standard oligopoly theory tools. * We would like to thank to Soledad Arellano, Sophie Bade, Ross Baldick, Alex Galetovic, Aldo González, Rodrigo Palma, Robert Wilson, and several seminar participants for useful suggestions. We particularly thank two anonymous referees for their detailed review and suggestions. Anne-Lise Thouroud provided helpful research assistance. This work was partially supported by ICM Complex Engineering Systems.

Analysis of M-stationary points to an EPEC modeling oligopolistic competition in an electricity spot market

“…Our model follows [6] and other references and ignores Kirchhoff's voltage law for simplifying the structural analysis. However, it does consider power loss along transmission lines.…”

“…Though the model is somewhat simplified in order to facilitate the analysis, we strive to keep the most meaningful facets intact. It is inspired by related work in [6,11,12] and one that has recently been investigated in [7]. We also mention the interesting work in [26,27] devoted to EPECs/MPECs in market models though not related with M-stationarity as considered here.…”

“…Thus, q + By − L(y) provides the vector of electricity available at the given nodes (= production + transmission -losses) explaining the relation (3.1). As noted in [6], it is reasonable to use the following explicit form for the loss function:…”

Divide to conquer: decomposition methods for energy optimization

“…We will focus here on game-theoretic formulations, although other approaches such as bi-level programming and mathematical programs with equilibrium constraints are also possible. References on the topic are numerous; with no claim of being exhaustive we mention [3,4,19,23,24,28,29,31,[60][61][62]77,91,109,110].…”

Auction Performance in Wholesale Electricity Markets in the Presence of Transmission Constraints and Transmission Costs

“…Holmberg and Philpott (2012) solve for symmetric supply function equilibria in electricity networks when demand is uncertain exante, but they do not consider any transmission costs. Escobar and Jofré (2010) analyze the effect of transmission losses, a transmission cost, on equilibrium outcome allocations, but they neglect transmission constraints. However, none of these models consider the effect that the type of auction could have by determining equilibrium outcome allocations.…”