Electricity Generation with Looped Transmission Networks: Bidding to an ISO
AbstractThis paper uses a bi-level game to model markets for delivery of electrical power on looped transmission networks. It analyzes the effectiveness of an independent system operator (ISO) when generators (and, in some cases, retailers) with market power bid a single parameter of their linear supply (demand) functions to the ISO. The ISO, taking these bids at face value, maximizes welfare subject to transmission constraints. We find that equilibrium outcomes are sensitive to firms’ strategy spaces: 1. In the presence of transmission congestion and loop flows, supply function equilibria (SFE) are not bounded from above by Cournot equilibria, so Cournot outcomes may be more effcient than SFE, a difference that can be accentuated by increasing the number of rivals at a given node; 2. Allocation of transmission rights to generators can reduce effciency; and 3. Countervailing power on the part of buyers can lower effciency.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0470.
Date of creation: Nov 2004
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electricity market; nodal pricing; locational marginal pricing; supply function equilibria; bilevel game; bilevel program;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
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