A game theory simulator for assessing the performances of competitive electricity markets

Abstract

Electricity markets have different structures in different nations. Market structure, market rules, load level, market concentration and energy sources used to produce electricity influence the performances of the market. Modifications on those aspects may significantly affect market outcomes. Market simulators are developed to study the market behavior both from the point of view of the regulator and of the market players. The goal of regulators are monitoring the system, testing the rules or detecting market deficiencies, while the goal of each player is to find the optimal strategy to bid in the market. In this paper a medium run electricity market simulator (MREMS) based on game theory is presented. This simulator aims at capturing the strategic behavior of the producers resorting to the Forchheimer or Bertrand models, the kind of model being chosen according to the market concentration. A Residual Demand Curve (RDC) approach is proposed for the best bid exploration. Real input data from the Italian market are considered with some simplifying hypotheses related mainly to the hydropower allocation. These hypotheses ensure that the level of complexity of the modelization stays within reasonable limits. To illustrate the main features of the simulator and its usefulness in analyzing the electricity markets we present the results of the simulations on the Italian market.