The electricity industry in the United States and throughout the world is undergoing radical restructuring. These changes require new analysis techniques, both for market participants and for regulators. The goal of this proposal is to investigate appropriate analysis concepts.
The underlying transmission system plays a significant role in all market structures. Under certain conditions, transmission congestion can subdivide even relatively large power pools, constraining the generation dispatch. Tools are needed to help market participants devise optimal bidding strategies. Conversely, regulators must be vigilant against anti-competitive acts.
Investigation of a market solution algorithm that bridges the gap between and economic analysis is proposed. Ultimately, such an algorithm will facilitate analysis of the impact of underlying engineering constraints on the market. A complete model of the transmission system will be embedded in the market simulation. The starting point is an Optimal Power Flow that maximizes the social welfare of the electricity market.
The research will determine the best algorithm for individual welfare optimization. One promising approach is to formulate the problem as a nested optimization: an individual must maximize welfare subject to the fact that their price and dispatch are determined by the pool operator, who is, in turn, attempting to maximize overall social welfare. This algorithm motivates an iterative approach to obtaining Nash equilibria.
The algorithm for finding Nash equilibria describes a dynamic process that involves switched algebraic constraints. The insights that are provided by this dynamical systems view of market behavior should facilitate a systematic definition of market power.
