Tacit collusive bidding strategy in a pool-based electricity market

In a pool-based electric energy market with uniform pricing rule, withholding generation capacity unilaterally for a generation company (GenCo) can no longer alter market clearing price (MCP) to its own benefits under the relatively lower market concentration and load demand. In other words, the unilaterally withholding strategy is no longer profitable. Thus, the only approach for a GenCo to gain the excess profits is to be engaged in a tacit collusion. In this paper, a risk decisionmaking model considering price uncertainty is developed to formulate the tacit collusive problem faced by a GenCo. To solve this complex probabilistic model, a simple heuristic bidding rule is suggested in consideration of GenCo´s bounded rationality. That is, under the forecasted probability distribution of MCP, the capacity blocks which have little probability of being accepted by the market because of their higher costs should be withheld by the GenCo. Based on this bidding rule, the mechanism of price spiking under the sufficient supply is explicitly analyzed and illustrated subsequently.