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Cournot Equilibria in Two-Settlement Electricity Markets with System Contingencies



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Cournot Equilibria in Two Settlement Electricity Markets with System Contingencies Jian Yao Shmuel S Oren Ilan Adler Department of Industrial Engineering and Operations Research University of California at Berkeley Berkeley CA 94720 jyao oren adler ieor berkeley edu Abstract We study Nash equilibrium in two settlement competitive electricity markets with horizontal market power flow congestion demand uncertainties and probabilistic system contingencies The equilibrium is formulated as a stochastic Equilibrium Problem with Equilibrium Constraints EPEC in which each firm solves a stochastic Mathematical Program with Equilibrium Constraints MPEC We assume a no arbitrage relationship between the forward prices and the spot prices We find that with two settlements the generation firms have incentives to commit forward contracts which increases social surplus and decreases spot energy prices Furthermore these effects are amplified when the markets become less concentrated Keywords Two Settlements Cournot Equilibrium Problem with Equilibrium Constraints 1 Introduction The last decade has witnessed a fundamental transformation of the electric power industry around the world from one dominated by regulated vertically integrated monopolies to an industry where electricity is produced and traded as a commodity through competitive markets In the US this transformation was pioneered in the late 1990s by California and the northeastern power pools including Pennsylvania New Jersey Maryland PJM Interchange New York and New England A recent arrival is the ERCOT market in Texas While there are significant differences among the many implemented and proposed market designs that vary in terms of ownership structure level of centralization and the authority of the system operator the primary rationale for electricity restructuring in most markets has been to reap welfare gains by supplanting regulation with competition Both theory and experience from other formerly regulated industries



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