An empirical approach of modelling electricity prices in an oligopoly market

Most of the electricity markets are an oligopoly rather than perfect competition. In an oligopolistic market, generators tend to increase their profits by raising their bid prices, increasing the market price and hence favoring the investment in a new power plant. This paper proposes a new empirical approach to estimate the price duration curve (PDC) in an oligopoly electricity market based on a shape of a PDC derived from an actual market. The objective of modelling the PDC in the oligopoly market is to have a realistic price in calculating the revenues from a new investment, so that the new investment is not underestimated. Since the PDC is sensitive to the shape of the load duration curve (LDC) and calculated according to each segment of the discretized LDC, an optimal approach to discretize the LDC is introduced prior to the modelling using dynamic programming.