Hydrothermal market simulator using game theory: assessment of market power

Abstract

The aim of this work is to build a model able to simulate a hydrothermal electric power market based on simple bids to a power exchange. The model studies the behavior of different market agents in a short-term horizon and delivers information about spot prices, use of water, and other relevant variables. Initially, a thermoelectric market is simulated through a static model based on Cournot concepts. The addition of hydroelectric power stations and time dependencies is made later, using a dynamic programming algorithm to build a dynamic model. In each stage and state of the dynamic programming, a Nash-Cournot equilibrium is determined to assess the behavior of the thermoelectric power stations (static model). Different strategies that firms can follow and the consequences of each one of them are analyzed. Market power mitigation effects of physical and financial bilateral contracts are also investigated. A case study with data on the Chilean power system is presented and analyzed.