Two-stage hybrid electricity market trading strategy optimization with renewable electricity under cap-and-trade policy

Weisi Zhang, Qingsong Mao, Xia Pan, Rui Luo and Ling Liang

Energy Economics, 2025, vol. 150, issue C

Abstract: With the trial operation of a two-stage electricity trading mechanism, and the pilot of cap-and-trade policy in the electricity sector, optimizing strategies within a hybrid electricity market has emerged as a hot research topic. To explore the scenario of integrating renewable electricity to form a hybrid electricity market, and to analyze the impact of cap-and-trade policy on electricity market transactions, this study employs game theory to establish a two-stage electricity market analysis framework, which encompasses transactions by traditional thermal electricity generator and renewable electricity generator in the forward and spot markets. The research findings indicate that widespread integration of renewable electricity lowers spot electricity prices but may cause forward prices to rise during significant spot market volatility. It also significantly reduces carbon emissions, while an initial surge in emissions could occur, in the early stages of renewable electricity integration with low spot market demand volatility. Two-stage trading could mitigate spot price and enhance profitability of traditional thermal electricity generators, during periods of substantial market volatility. Regarding the cap-and-trade policy, it generally leads to lower electricity prices in both forward and spot markets under conditions of loose carbon emission constraints, and the impact on generators' profitability is contingent. Specifically, the policy does not invariably negatively affect traditional thermal electricity generator. Under loose emission reduction constraints, the policy does not necessarily increase the profits of renewable electricity generator.

Keywords: Hybrid electricity; Two-stage market; Supply-demand uncertainty; Risk preferences; Cap-and-trade policy (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:150:y:2025:i:c:s0140988325005912

DOI: 10.1016/j.eneco.2025.108764

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