Market power monitoring in electricity market by using market simulation

This paper describes a new method for analyzing the bidding strategies of generating companies (GENCOs) in the independent system operator (ISO) point of view. ISO uses these results to detect the participants that have the potential for market power or actual exercise of market power. ISO models all GENCOs with perfect information. The proposed methodology uses the marginal cost of GENCOs as an initial point for bidding strategies of GENCOs and improves bidding strategies based on the objective function of GENCOs, the state of them in each hour of the day and with regard to ISO´s market clearing problem. ISO tries to maximize the social welfare or minimize consumer´s payments. The model presented in this paper simulates the energy market and the behavior of participants to obtain Nash equilibrium point of their bidding strategies for detecting the participants that have the potential for market power or actual exercise of market power. GAMS (general algebraic modeling system) language has been used to solve the profit maximization and social welfare maximization modules of this model using DICOPT optimization software with mixed integer non-linear programming