The exercise of market power by electric generators could cause substantial inefficiencies and price inequities. Because market power in one market can affect other markets, distorting both, we will consider linkages among markets for different commodities, such as ancillary services, energy, and transmission services. In this research, mixed complementary (MC) models will be developed to consider strategic behavior in multiple markets. These models will be designed so that they can be solved for systems with thousands of generators and transmission interfaces. Some models will be formulated as MPECs (mathematical programs with equilibrium constraints) to represent games in which a dominant firm anticipates reactions of other firms.
MC and MPEC models will be formulated of markets for transmission services with strategic interactions, and situations in which power producers can exercise market power in more than one market simultaneously. Other markets considered will include capacity, reserves, and green power. Small versions of the developed models will be solved to identify whether market interactions are important, and if their simultaneous consideration significantly alter prices, economic efficiency, market shares, generation mixes, or other outcomes.
The MC models will be analyzed to determine whether solutions exist and are unique.
The two highest priority applications identified will be modeled using generator, demand, and transmission data from power markets in the US or UK. The potential impact of market power upon market outcomes will be analyzed.