Skip to main content

Please enter a keyword and click the arrow to search the site

Optimal investment by large consumers in an electricity market with generator market power

Journal

Computational Management Science

Subject

Management Science and Operations

Authors / Editors

Verma P P;Hesamzadeh M R;Rebennack S;Bunn D;Swarup K S;Srinivasan D

Biographies

Publication Year

2024

Abstract

The investment decisions of energy-intensive consumers can alter the balance of supply and demand in an electricity market, for example by amplifying the market power of incumbent generators such that prices may increase as a consequence. In particular, such investments in an existing market, which does not manifest substantial market power, may create a new potential for the exercise of market power by the generators. Whilst it is therefore intuitive that these investors will wish to consider their effects on the market, it is a challenging problem analytically. In general, the problem exists in any supply chain where demand-side investments influence endogenous price formation in the intermediate product markets. Theoretically, we show how the presence of producer market power decreases demand-side investments and then, computationally we formulate a quad-level program to model the operational implications for a demand-side investor in more detail. With an innovative reduction in complexity to a bilevel model, an efficient solution algorithm for the optimal investment by a demand-side investor is facilitated. We demonstrate computability on a small scale electricity system and the results confirm the theory.

Keywords

Electricity market; Demand investment; Bayesian Nash equilibrium

Available on ECCH

No


Select up to 4 programmes to compare

Select one more to compare
×
subscribe_image_desktop 5949B9BFE33243D782D1C7A17E3345D0

Sign up to receive our latest news and business thinking direct to your inbox