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Electric Power Network Oligopoly as a Dynamic Stackelberg Game

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Abstract

Over the last two decades, the electricity industry has shifted from regulation of monopolistic and centralized utilities towards deregulation and promoted competition. With increased competition in electric power markets, system operators are recognizing their pivotal role in ensuring the efficient operation of the electric grid and the maximization of social welfare. In this article, we propose a hypothetical new market of dynamic spatial network equilibrium among consumers, system operators and electricity generators as solution of a dynamic Stackelberg game. In that game, generators form an oligopoly and act as Cournot-Nash competitors who non-cooperatively maximize their own profits. The market monitor attempts to increase social welfare by intelligently employing equilibrium congestion pricing anticipating the actions of generators. The market monitor influences the generators by charging network access fees that influence power flows towards a perfectly competitive scenario. Our approach anticipates uncompetitive behavior and minimizes the impacts upon society. The resulting game is modeled as a Mathematical Program with Equilibrium Constraints (MPEC). We present an illustrative example as well as a stylized 15-node network of the Western European electric grid.

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Notes

  1. Note, we distinguish congestion rent from the term “No congestion” describing the scenario.

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Acknowledgments

The authors would like to sincerely thank the two anonymous reviewers for their helpful comments and suggestions. This material is based upon work supported by the National Science Foundation under Grant No. DGE1255832. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the National Science Foundation.

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Authors and Affiliations

  1. Strategic Planning and Modeling (SPaM), HP Inc., Palo Alto, CA, 94304, USA

    Pedro A. Neto

  2. Department of Industrial and Manufacturing Engineering, Pennsylvania State University, State College, PA, 16802, USA

    Terry L. Friesz

  3. Department of Civil and Environmental Engineering, Imperial College London, London, SW7 2BU, UK

    Ke Han

Authors
  1. Pedro A. Neto
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  2. Terry L. Friesz
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  3. Ke Han
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Correspondence to Ke Han.

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Neto, P.A., Friesz, T.L. & Han, K. Electric Power Network Oligopoly as a Dynamic Stackelberg Game. Netw Spat Econ 16, 1211–1241 (2016). https://doi.org/10.1007/s11067-016-9337-7

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  • DOI: https://doi.org/10.1007/s11067-016-9337-7

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