Generation Markets Equilibrium Analysis Using Residual Demands

In this paper, Nash equilibriums of generation markets are investigated using a game theory application for simplified competitive electricity markets. The characteristic of equilibrium states in N-company spot markets modelled by uniform pricing auctions is analyzed and a new method for obtaining Nash equilibriums of the auctions is proposed. Spot markets are assumed to be operated as uniform pricing auctions and generation companies are assumed to submit their bids into the auctions in the form of a seal-bid. The uniform pricing auctions in this analysis are formulated as non-cooperative and static games in which generation companies correspond to the players of the game. The coefficient of the bidding function of company-n is assigned to the strategy of the playern (company-n) and the payoff of player-n is defined as its profit from the uniform price auction. Based on the concept of residual demand, best response functions of each generation company in the N-company auctions are analytically derived. Finally, an efficient way to obtain all the possible equilibrium set pairs and to examine their feasibilities as Nash equilibriums are suggested. A simple numerical example with three generation companies is demonstrated to show the basic ideas of the proposed method. Copyright © 2005 IFAC