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Department of Business and Management Science, Norwegian School of Economics (NHH) Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)

No 2014/29:
Market Power in a Power Market with Transmission Constraints

Mette Bjørndal (), Victoria Gribkovskaia () and Kurt Jörnsten ()

Abstract: In this paper we present a model for analysing the strategic behaviour of a generator and its short run implications on an electricity network with transmission constraints. The problem is formulated as a Stackelberg leader-follower game. The upper level problem is generator’s profit maximisation subject to the solution of the lower level problem of optimal power flow (OPF) solved by system operator. Strategic bidding is modelled as an iterative procedure where the supply functions of the competitive fringe are fixed while the strategic player’s bids are changed in a successive order until the bid giving maximum profit is found. This application rests on the assumption of supply function Nash equilibrium when the supplier believes that changes in his bids will not influence other actors to alter their bid functions. Numerical examples are presented on a simple triangular network.

Keywords: Electric power market; Supply function equilibria; Bilevel games; Strategic energy bidding; Irrelevant constraints; (follow links to similar papers)

JEL-Codes: Q00; (follow links to similar papers)

6 pages, June 26, 2014

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