Spatial Oligopolistic Electricity Models with Cournot Generators and Regulated Transmission Prices

Abstract

An oligopoly with spatially dispersed generators and consumers and with multi-period demand is modeled in this paper. The producers are assumed to behave in a Cournot manner with regulated transmission prices. A (generalized) Nash equilibrium is sought. The story of the game is as follows. Each generator takes its rivals' output (generation, supply, and flows) and the prices for transmission services as fixed when it decides upon its output to maximize its profit; the transmission firm takes the quantities of transmission services demanded by the generators as fixed when it determines the transmission prices according to certain regulatory rules. An equilibrium of the model is a set of generation output at which no generator will obtain more profit if it unilaterally modifies its output from this set, and a set of transmission prices satisfying certain regulatory requirements. A variational inequality approach is used for computing the equilibria of the model. Using the same approach, two variants of the model, respectively based on average-cost and marginal-cost pricing for transmission services, are also formulated. This model is applied to simulate a long-run electricity market where transmission prices are regulated.