Equilibria in investment and spot electricity markets: A conjectural-variations approach

Seyedamirabbas Mousavian, Antonio J. Conejo and Ramteen Sioshansi

European Journal of Operational Research, 2020, vol. 281, issue 1, 129-140

Abstract: We study generation-capacity planning in a restructured oligopolistic electricity market, taking a conjectural-variations approach. We do this through a two-stage model that captures an initial set of investments followed by equilibria in a series of spot electricity markets, in which firms make production decisions. Although we model the generating firms as being quantity-setters, we do not model a Nash–Cournot equilibrium. Instead, we assume that the firms endogenize the impacts of their production decisions on rivals through reaction parameters, giving a conjectural-variations model of the spot-market equilibrium. Equilibrium conditions in each spot market, as a function of the investment decisions, are derived. This allows characterizing an equilibrium at the investment stage. The proposed model allows the derivation of analytical expressions that characterize such multi-stage equilibria. This proposed model provides insights on the outcomes and characteristics of investment decisions in an imperfectly competitive market setting. Such insights may allow policymakers to understand the efficiency implications of oligopolistic market structures.

Keywords: OR in energy; Generation-capacity planning; Electricity spot markets; Conjectural variations (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:281:y:2020:i:1:p:129-140

DOI: 10.1016/j.ejor.2019.07.054

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