A Stochastic EPEC Model for Electricity Markets with Two Way Contracts

Dali Zhang(zhangdlsoton.ac.uk)
Huifu Xu(h.xusoton.ac.uk)
Yue Wu(Y.Wusoton.ac.uk)

Abstract: This paper presents a stochastic equilibrium program with equilibrium constraint (SEPEC) model for studying generator’s competition in electricity markets. We assume that generators have two stages of competition: In the first stage, generators compete to sign contracts with retailers in a forward market to hedge risks before entering a spot market, and in the second stage, they compete to daily dispatch in a spot market. We investigate interactions between forward market and spot market in terms of Nash-Cournot equilibrium. Since forward contracts are signed before generators entering a day to day spot market competition and market demand is uncertain, a generator’s decision problem in forward market is a stochastic maximization problem under the constrains (conjecture) that the second stage competition in spot market will reach an equilibrium in every demand scenario. Consequently, the market equilibrium problem in forward market can be modeled as an SEPEC. This model is an extension of a similar model proposed by Gans, Price and Woods [11] for a duopoly market. Under some mild conditions, we investigate the existence of equilibrium in both markets and properties of the equilibria.

Keywords:

Category 1: Complementarity and Variational Inequalities

Category 2: Applications -- OR and Management Sciences (Other )

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Entry Submitted: 02/06/2008
Entry Accepted: 02/06/2008
Entry Last Modified: 02/06/2008

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