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A Generalized Nash Equilibrium Model of Market Coupling in the European Power System

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Author Info

  • Giorgia Oggioni

    ()

  • Yves Smeers

    ()

  • Elisabetta Allevi

    ()

  • Siegfried Schaible

    ()

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    Abstract

    “Market Coupling” is currently seen as the most advanced market design in the restructuring of the European electricity market. Market Coupling, by construction, introduces what is generally referred to as an incomplete market: it leaves several constraints out of the market and hence avoids pricing them. This may or may not have important consequences in practice depending on the case on hand. Quasi-Variational Inequality problems and the associated Generalized Nash Equilibrium can be used for representing incomplete markets. Recent papers propose methods for finding a set of solutions of Quasi-Variational Inequality problems. We apply one of these methods to a subproblem of market coupling namely the coordination of counter-trading. This problem is an illustration of a more general question encountered, for instance, in hierarchical planning in production management. We first discuss the economic interpretation of the Quasi-Variational Inequality problem. We then apply the algorithmic approach to a set of stylized case studies in order to illustrate the impact of different organizations of counter-trading. The paper emphasizes the structuring of the problem. A companion paper considers the full problem of Market Coupling and counter-trading and presents a more extensive numerical analysis. Copyright Springer Science+Business Media, LLC 2012

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    File URL: http://hdl.handle.net/10.1007/s11067-011-9166-7
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    Bibliographic Info

    Article provided by Springer in its journal Networks and Spatial Economics.

    Volume (Year): 12 (2012)
    Issue (Month): 4 (December)
    Pages: 503-560

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    Handle: RePEc:kap:netspa:v:12:y:2012:i:4:p:503-560

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    Web page: http://www.springerlink.com/link.asp?id=106607

    Related research

    Keywords: Generalized Nash Equilibrium; Quasi-Variational Inequalities; Market coupling; Counter-trading; European electricity market; D52; D58; Q40;

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    References

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    1. Harker, Patrick T., 1991. "Generalized Nash games and quasi-variational inequalities," European Journal of Operational Research, Elsevier, vol. 54(1), pages 81-94, September.
    2. Chao, Hung-Po & Peck, Stephen C, 1998. "Reliability Management in Competitive Electricity Markets," Journal of Regulatory Economics, Springer, vol. 14(2), pages 189-200, September.
    3. Jong-Shi Pang & Masao Fukushima, 2005. "Quasi-variational inequalities, generalized Nash equilibria, and multi-leader-follower games," Computational Management Science, Springer, vol. 2(1), pages 21-56, 01.
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    Cited by:
    1. Daniel Huppmann & Ruud Egging, 2014. "Market Power, Fuel Substitution and Infrastructure: A Large-Scale Equilibrium Model of Global Energy Markets," Discussion Papers of DIW Berlin 1370, DIW Berlin, German Institute for Economic Research.

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