Cournot equilibria in two-settlement electricity markets with system contingencies

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 there are more firms in the markets.