Novel methodology for simulation studies of strategic behavior of electricity producers

In this paper, a methodology to simulate the strategic behavior of generating companies in an oligopolistic electricity market is proposed. In this contest, each firm sharing the market does not bid at marginal cost as it is in a perfect competitive market, but profit-maximizing strategies are carried out. In the developed methodology, the general case of an asymmetric oligopoly is analyzed and the strategic behavior of producers is investigated, assuming linear supply functions. Moreover, the proposed methodology allows the presence of private contracts, set up as contracts for difference (CfDs), to be taken into account, evaluating their effects on the market equilibrium conditions. The results of the analysis are expressed in terms of market clearing price, profit-maximizing value of the supply functions´ slope, and hence real power output sold and profit made, of each producer sharing the market. Marginal cost bids are evaluated and considered as desired supply function in order to determine the “market power” of producers, in terms of distance of the strategic bids from the desired marginal cost bids. The effectiveness of the proposed model is tested on a wholesale electricity market composed by ten different generating companies