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Electric Power Network Oligopoly as a Dynamic Stackelberg Game

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  • Pedro A. Neto

    (HP Inc.)

  • Terry L. Friesz

    (Pennsylvania State University)

  • Ke Han

    (Imperial College London)

Abstract

Over the last two decades, the electricity industry has shifted from regulation of monopolistic and centralized utilities towards deregulation and promoted competition. With increased competition in electric power markets, system operators are recognizing their pivotal role in ensuring the efficient operation of the electric grid and the maximization of social welfare. In this article, we propose a hypothetical new market of dynamic spatial network equilibrium among consumers, system operators and electricity generators as solution of a dynamic Stackelberg game. In that game, generators form an oligopoly and act as Cournot-Nash competitors who non-cooperatively maximize their own profits. The market monitor attempts to increase social welfare by intelligently employing equilibrium congestion pricing anticipating the actions of generators. The market monitor influences the generators by charging network access fees that influence power flows towards a perfectly competitive scenario. Our approach anticipates uncompetitive behavior and minimizes the impacts upon society. The resulting game is modeled as a Mathematical Program with Equilibrium Constraints (MPEC). We present an illustrative example as well as a stylized 15-node network of the Western European electric grid.

Suggested Citation

  • Pedro A. Neto & Terry L. Friesz & Ke Han, 2016. "Electric Power Network Oligopoly as a Dynamic Stackelberg Game," Networks and Spatial Economics, Springer, vol. 16(4), pages 1211-1241, December.
    • Handle: RePEc:kap:netspa:v:16:y:2016:i:4:d:10.1007_s11067-016-9337-7
    DOI: 10.1007/s11067-016-9337-7
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    References listed on IDEAS

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    Cited by:

    1. Blas Pelegrín & Pascual Fernández & María Dolores García, 2018. "Computation of Multi-facility Location Nash Equilibria on a Network Under Quantity Competition," Networks and Spatial Economics, Springer, vol. 18(4), pages 999-1017, December.
    2. Dávid Csercsik & László Á. Kóczy, 2017. "Efficiency and Stability in Electrical Power Transmission Networks: a Partition Function Form Approach," Networks and Spatial Economics, Springer, vol. 17(4), pages 1161-1184, December.
    3. Yao, Jingyuan & Xiao, Erliang & Jian, Xianzhong & Shu, Lingli, 2021. "Service quality and the share of renewable energy in electricity generation," Utilities Policy, Elsevier, vol. 69(C).
    4. C. Ruiz & F. J. Nogales & F. J. Prieto, 2018. "Retail Equilibrium with Switching Consumers in Electricity Markets," Networks and Spatial Economics, Springer, vol. 18(1), pages 145-180, March.
    5. Kerstin Dächert & Sauleh Siddiqui & Javier Saez-Gallego & Steven A. Gabriel & Juan Miguel Morales, 2019. "A Bicriteria Perspective on L-Penalty Approaches – a Corrigendum to Siddiqui and Gabriel’s L-Penalty Approach for Solving MPECs," Networks and Spatial Economics, Springer, vol. 19(4), pages 1199-1214, December.
    6. Bichuch, Maxim & Hobbs, Benjamin F. & Song, Xinyue, 2023. "Identifying optimal capacity expansion and differentiated capacity payments under risk aversion and market power: A financial Stackelberg game approach," Energy Economics, Elsevier, vol. 120(C).

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