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Game-theoretic analysis of suppliers’ pricing power in thermal-electric local energy markets

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  • Barbosa, Julia
  • Döllinger, Florian
  • Steinke, Florian

Abstract

The integration of renewable energy resources can be facilitated by local energy markets (LEMs) for multiple energy commodities. While multi-energy LEMs are designed to alleviate entry barriers for smaller players, the limited capacity and participant count within an LEM can cause imperfect competition. This study formulates a Nash–Cournot game to analyze the market power of local suppliers in a thermal-electric LEM. By comparing the prices and welfare outcomes of a perfectly competitive market with those of an oligopolistic market, we highlight the impact of the number and mix of market participants on the distribution of social welfare and market efficiency. Additionally, we introduce and assess two strategies aimed at mitigating the supplier’s market power. Based on simulations of a LEM with demand and installed capacity similar to that of a large German city, we show that LEM should not be assumed to be perfectly competitive, as the strategic behavior of supplier agents significantly affects the market outcome. Our analyzed mitigation strategies exhibit the potential to curtail suppliers’ market power, redistribute social welfare, and contribute to more balanced market dynamics.

Suggested Citation

  • Barbosa, Julia & Döllinger, Florian & Steinke, Florian, 2024. "Game-theoretic analysis of suppliers’ pricing power in thermal-electric local energy markets," Energy, Elsevier, vol. 313(C).
    • Handle: RePEc:eee:energy:v:313:y:2024:i:c:s0360544224033693
    DOI: 10.1016/j.energy.2024.133591
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