The impact of transmission on imperfect electricity competition

Abstract

This paper investigates the impact of transmission networks on imperfect competition in deregulated electricity markets. Electricity producers are assumed to engage on a noncooperative gaming with complete but imperfect information. The problem is formulated as a vector profit optimization model. It shows that increasing wheeling charges can both increase market prices and reduce producers' profits, a phenomenon that cannot be explained by a nonspatial framework. Transmission limits have a significant impact on outcomes of market gaming, indicating that reducing transmission congestion would mitigate market power.