Computational Economics

, Volume 34, Issue 1, pp 21–35 | Cite as

Network Topology and Locational Market Power

Article

Abstract

This paper studies the effect of network topology and production constraints on the locational market power of generators. A market power spectrum is considered where one end has infinitely large production capacity but the usual network constraints while the other end has infinitely large network capacity but the usual production constraints. First, we analyze the locational market power function mathematically. Then, we use a real world example of the Portland, Oregon electrical market and determine its position on the market power spectrum. We find the Portland market to be primarily production constrained rather than network constrained. We also identify the local and global threshold generation capacities for each generator beyond which it cannot influence the individual and total locational market power, respectively. This study facilitates the understanding of the economic and physical determinants of locational market power. It can help regulators make informed decisions when it comes to the choice of enhancing the physical infrastructure, or adding more generation capacity to the market.

Keywords

Market power Transmission constraints Electricity market Network capacity 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Atkins, K., Chen, J., Kumar, V., Macauley, M., & Marathe, A. (2006, June). Locational market power in power markets. In Proceedings of the 2006 IAEE conference, Potsdam, Germany.Google Scholar
  2. Atkins K., Chen J., Kumar V., Macauley M., Marathe A. (2009) Locational market power in network constrained markets. Journal of Economic Behavior & Organization 70(1–2): 416–430CrossRefGoogle Scholar
  3. Baldick R., Kahn E. (1997) Contract paths, phase shifters, and efficient electricity trade. IEEE Transactions on Power Systems 12(2): 749–755CrossRefGoogle Scholar
  4. Bunn D., Martoccia M. (2005) Unilateral and collusive market power in the electricity pool of England and Wales. Energy Economics 27(2): 305–315CrossRefGoogle Scholar
  5. Bushnell, J., & Wolak, F. A. (2000, May). Regulation and the leverage of local market power in the California electricity market. Working Paper CPC00-013, UC Berkeley, Competition Policy Center. Available at http://repositories.cdlib.org/iber/cpc/CPC00-013.
  6. Cardell J.B., Hitt C.C., Hogan W.W. (1997) March). Market power and strategic interaction in electricity networks. Resource and Energy Economics 19(1–2): 109–137CrossRefGoogle Scholar
  7. Cormen T.H., Leiserson C.E., Rivest R.L., Stein C. (2001) Introduction to algorithms. MIT Press and McGraw-Hill, Cambridge MAGoogle Scholar
  8. Ford L., Fulkerson D. (1962) Flows in networks. Princeton University Press, PrincetonGoogle Scholar
  9. Goldberg, A. Network optimization library. http://www.avglab.com/andrew/soft.html.
  10. Hogan, W. W. (2002, April). Market power and electricity competition. In: Fiftieth annual antitrust law spring meeting, Washington, DC. http://ksghome.harvard.edu/whogan/aba_hogan_042502r.pdf.
  11. Patton, D. B. (2001, December). Detecting and mitigating market power in competitive electric markets. American Antitrust Institute, Market Monitoring Conference.Google Scholar
  12. Sweeting, A. (2004, October). Market power in the England and Wales wholesale electricity market 1995–2000. Cambridge Working Papers in Economics 0455, Faculty of Economics (formerly DAE). University of Cambridge.Google Scholar
  13. Wolak, F. A., Nordhaus, R., & Shapiro, C. (2000, June). Opinion on the California ISO’s proposal for interim locational market power mitigation. Market Surveillance Committee, Opinion on Interim LMPM Proposal.Google Scholar
  14. Wolfram C.D. (1999) Measuring duopoly power in the British electricity spot market. The American Economic Review 89(4): 805–826CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  • Jiangzhuo Chen
    • 1
  • Matthew Macauley
    • 2
  • Achla Marathe
    • 1
    • 3
  1. 1.Network Dynamics and Simulation Science Laboratory, Virginia Bioinformatics InstituteVirginia Polytechnic Institute and State UniversityBlacksburgUSA
  2. 2.Department of Mathematical SciencesClemson UniversityClemsonUSA
  3. 3.Department of Agricultural and Applied EconomicsVirginia Polytechnic Institute and State UniversityBlacksburgUSA

Personalised recommendations