1 paper accepted to IEEE TEMPR

by

Our paper on market power mitigation in two-stage markets [1] has been accepted to Transactions on Energy Markets, Policy, and Regulation!

[1] [doi] R. K. Bansal, Y. Chen, P. You, and E. Mallada, “Market Power Mitigation in Two-stage Electricity Market with Supply Function and Quantity Bidding,” IEEE Transactions on Energy Markets, Policy and Regulation, vol. 1, iss. 4, pp. 512-522, 2023.
[Bibtex] [Abstract] [Download PDF]

Two-stage settlement electricity markets, which in- clude day-ahead and real-time markets, often observe unde- sirable price manipulation due to the price difference across stages, inadequate competition, and unforeseen circumstances. To mitigate this, some Independent System Operators (ISOs) have proposed system-level market power mitigation (MPM) policies in addition to existing local policies. These system-level policies aim to substitute noncompetitive bids with a default bid based on estimated generator costs. However, without accounting for the conflicting interest of participants, they may lead to unintended consequences when implemented. In this paper, we model the competition between generators (bidding supply functions) and loads (bidding quantity) in a two-stage market with a stage- wise MPM policy. An equilibrium analysis shows that a real- time MPM policy leads to equilibrium loss, meaning no stable market outcome (Nash equilibrium) exists. A day-ahead MPM policy leads to Stackelberg-Nash game, with loads acting as leaders and generators as followers. Despite estimation errors, the competitive equilibrium is efficient, while the Nash equilibrium is comparatively robust to price manipulations. Moreover, analysis of inelastic loads shows their tendency to shift allocation and manipulate prices in the market. Numerical studies illustrate the impact of cost estimation errors, heterogeneity in generation cost, and load size on market equilibrium.

@article{bcym2023tempr,
  abstract = {Two-stage settlement electricity markets, which in- clude day-ahead and real-time markets, often observe unde- sirable price manipulation due to the price difference across stages, inadequate competition, and unforeseen circumstances. To mitigate this, some Independent System Operators (ISOs) have proposed system-level market power mitigation (MPM) policies in addition to existing local policies. These system-level policies aim to substitute noncompetitive bids with a default bid based on estimated generator costs. However, without accounting for the conflicting interest of participants, they may lead to unintended consequences when implemented. In this paper, we model the competition between generators (bidding supply functions) and loads (bidding quantity) in a two-stage market with a stage- wise MPM policy. An equilibrium analysis shows that a real- time MPM policy leads to equilibrium loss, meaning no stable market outcome (Nash equilibrium) exists. A day-ahead MPM policy leads to Stackelberg-Nash game, with loads acting as leaders and generators as followers. Despite estimation errors, the competitive equilibrium is efficient, while the Nash equilibrium is comparatively robust to price manipulations. Moreover, analysis of inelastic loads shows their tendency to shift allocation and manipulate prices in the market. Numerical studies illustrate the impact of cost estimation errors, heterogeneity in generation cost, and load size on market equilibrium.},
  author = {Bansal, Rajni Kant and Chen, Yue and You, Pengcheng and Mallada, Enrique},
  bdsk-url-3 = {https://doi.org/10.1109/TEMPR.2023.3318149},
  doi = {10.1109/TEMPR.2023.3318149},
  grants = {CAREER-1752362, CPS-2136324, EPICS-2330450},
  journal = {IEEE Transactions on Energy Markets, Policy and Regulation},
  month = {12},
  number = {4},
  pages = {512-522},
  record = {published, online Sep 2023, revised July 2023, under revision May 2023, submitted Jan 2023},
  title = {Market Power Mitigation in Two-stage Electricity Market with Supply Function and Quantity Bidding},
  url = {https://mallada.ece.jhu.edu/pubs/2023-TEMPR-BCYM.pdf},
  volume = {1},
  year = {2023}
}