Coordination of risk-based generation investments in conventional and renewable capacities in oligopolistic electricity markets: A robust regulatory tool

Morteza Aryani, Mohammad Ahmadian and Mohammad-Kazem Sheikh-El-Eslami

Energy, 2021, vol. 214, issue C

Abstract: Investment in new generation capacity is considerably affected by issues such as regulatory-determined incentives, techno-economic uncertainties and financial risks. In addition, increased penetration of renewables such as wind capacities resulting in decreased market prices, leads to the augmented risk of investing in conventional generations such as thermal technologies, which may hamper generation adequacy. Thus, to meet regulatory goals for adequacy and environmental considerations, regulators should determine investment incentives considering targets for techno-environmental issues and generation investors’ risks. So, this paper presents a bi-level robust regulatory model, in which regulator in the first level designs incentives considering generation companies’ (GENCOs’) investment response to regulatory decisions. In the second level, a robust game-theoretic model is considered to capture interactions between risk-averse GENCOs, facing uncertainties such as rivals’ behavior and nondispatchable generations. The effectiveness of proposed model is demonstrated by IEEE-RTS and ERCOT test systems and the results are compared with those obtained in the deterministic cases. As the results show, capacity payments and feed-in premiums should be coordinately designed to meet regulatory targets for techno-environmental conditions. Besides, more levels of uncertainties lead to designing more levels of investment incentives with respect to the deterministic case. Moreover, the more is the level of GENCOs’ risk-aversion, the more is the cost of designed incentives for promising regulatory targets considering GENCOs’ risk-hedging.

Keywords: Incentive design; Uncertainty modeling; Robust optimization; Generation investment; Game theory; Capacity payment (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:214:y:2021:i:c:s0360544220319630

DOI: 10.1016/j.energy.2020.118856

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