On the efficiency of local electricity markets under decentralized and centralized designs: a multi-leader Stackelberg game analysis

Hélène Le Cadre ()
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Hélène Le Cadre: VITO/EnergyVille Research Center

Central European Journal of Operations Research, 2019, vol. 27, issue 4, No 4, 953-984

Abstract: Abstract In this paper, we analytically compare centralized and decentralized market designs involving a national and local market operators, strategic generators having market power and bidding sequentially in local markets, to determine which design is more efficient for the procurement of energy. In the centralized design, used as benchmark, the national market operator optimizes the exchanges between local markets and the generators’ block bids. In the decentralized design, generators act as Stackelberg leaders, anticipating the local market prices and the flows on the transmission lines. Clearing of the local markets can be either simultaneous or sequential. The resulting two-stage game with competitive leaders that are not price takers is formulated as a bilevel mathematical programming problem which is reformulated as a Nash–Cournot game, and conditions for existence and uniqueness of market equilibrium are studied. Imperfect information is also considered, resulting from the lack of incentives from the generators to share their RES-based generations. Through a case study, we determine that the decentralized design is as efficient as the centralized one with high share of renewables, using as performance measure the price of anarchy, and that imperfect information has a limited impact on the efficiency of the decentralized market design. Furthermore, we check numerically that there exists an upper-limit on the block bid length maximizing the social welfare under both centralized and decentralized designs.

Keywords: Bilevel mathematical programming; Complementarity theory; Electricity market; Bidding; Price of anarchy (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10100-018-0521-3

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