Using EPECs to model bilevel games in restructured electricity markets with locational prices

Xinmin Hu and Daniel Ralph

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: CWPE0619 (EPRG0602) Xinmin Hu and Daniel Ralph (Feb 2006) Using EPECs to model bilevel games in restructured electricity markets with locational prices We study a bilevel noncooperative game-theoretic model of electricity markets with locational marginal prices. Each player faces a bilevel optimization problem that we remodel as a mathematical program with equilibrium constraints, MPEC. This gives an EPEC, equilibrium problem with equilibrium constraints. We establish sufficient conditions for existence of pure strategy Nash equilibria for this class of bilevel games and give some applications. We show by examples the effect of network transmission limits, i.e. congestion, on existence of equilibria. Then we study, for more general EPECs, the weaker pure strategy concepts of local Nash and Nash stationary equilibria. We model the latter via complementarity problems, CPs. Finally, we present numerical examples of methods that attempt to find local Nash or Nash stationary equilibria of randomly generated electricity market games. The CP solver PATH is found to be rather effective in this context.

Keywords: electricity market; bilevel game; MPEC; EPEC; Nash stationary point; equilibrium constraints; complementarity problem (search for similar items in EconPapers)
JEL-codes: C61 C62 C72 Q40 (search for similar items in EconPapers)
Pages: 36
Date: 2006-02
New Economics Papers: this item is included in nep-com, nep-ene and nep-gth
Note: IO
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Citations: View citations in EconPapers (1)

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