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How Elastic Demand Affects Bidding Strategy in Electricity Market: An Auction Approach

Debin Fang (), Qiyu Ren () and Qian Yu ()
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Debin Fang: Economics and Management School, Wuhan University, Wuhan 430072, China
Qiyu Ren: Economics and Management School, Wuhan University, Wuhan 430072, China
Qian Yu: School of Economics, Wuhan University of Technology, Wuhan 430070, China

Energies, 2018, vol. 12, issue 1, 1-13

Abstract: The deepening of electricity reform results in increasingly frequent auctions and the surge of generators, making it difficult to analyze generators’ behaviors. With the difficulties to find analytical market equilibriums, approximate equilibriums were obtained instead in previous studies by market simulations, where in some cases the results are strictly bound to the initial estimations and the results are chaotic. In this paper, a multi-unit power bidding model is proposed to reveal the bidding mechanism under clearing pricing rules by employing an auction approach, for which initial estimations are non-essential. Normalized bidding price is introduced to construct generators’ price-related bidding strategy. Nash equilibriums are derived depending on the marginal cost and the winning probability which are computed from bidding quantity, transmission cost and demand distribution. Furthermore, we propose a comparative analysis to explore the impact of uncertain elastic demand on the performance of the electricity market. The result indicates that, there exists market power among generators, which lead to social welfare decreases even under competitive conditions but elastic demand is an effective way to restrain generators’ market power. The feasibility of the models is verified by a case study. Our work provides decision support for generators and a direction for improving market efficiency.

Keywords: uniform clearing price auction; electricity market; bidding strategies; asymmetric information; social welfare (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2018
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