Generation Capacity Expansion in Energy Markets Using a Two-Level Game-Theoretic Model

Abstract

With a significant number of states in the U.S. and countries around the world trading electricity in restructured markets, a sizeable proportion of capacity expansion in the future will have to take place in market-based environments. However, since a majority of the literature on capacity expansion is focused on regulated market structures, there is a critical need for comprehensive capacity expansion models targeting restructured markets. In this research, we develop a two-tier matrix game model, and a novel solution algorithm that incorporates risk due to volatilities in profit (via CVaR), intended for use by generators to make multi-period, multi-player generation capacity expansion decisions. We demonstrate the applicability of the model using a sample network from Power-World software and analyze the results.