Competition and Cooperation in a Bidding Model of Electrical Energy Trade

Dávid Csercsik

Networks and Spatial Economics, 2016, vol. 16, issue 4, No 4, 1043-1073

Abstract: Abstract A cooperative game-theoretic framework is introduced to study the behavior of cooperating and competing electrical-energy providers in the wholesale market considering price-preference rational consumers. We study the physical and economic aspects of the power transmission system operation focussing on the incentives for group formation. We analyze the interactions of generators in an idealized environment described by a DC load flow model where the network is lossless and is operated by an independent network operator who ensures network stability and fulfillment of consumption needs while taking into account the preferences of consumers over generators. We show that cooperation of generators may be necessary to divert consumers from their previous providers. In the second part of the paper we assume an iterative process in which the generators publish their price offers simultaneously, based on which the consumers preferences are determined. We study the dynamics of the prices and profits as the system evolves in time while each coalition is trying to maximize its expected profit in each step. The model deals with network congestion and n − 1 line-contingency reliability as not every generator-consumer matching is allowed to ensure the safe operation of the transmission system. The profit of the generators is determined as the difference between their income and their production cost, which is a quadratic concave function of the production amount. Any non-monopolistic proper subset of the generators may cooperate and harmonize their offered prices to increase their resulting profit. Since we allow the redistribution of profits among cooperating generators, a transferable-utility game-theoretic framework is used. Furthermore, as cooperation affects the outsiders as well, the resulting game is defined in partition function form. The model is able to demonstrate some interesting benefits of cooperation as well as the effect of market regulations and asymmetric information on the resulting profits and total social cost.

Keywords: Networks; Power Transmission; Game theory; Externalities (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s11067-015-9310-x

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