Annals of Operations Research

, Volume 158, Issue 1, pp 229–241 | Cite as

Strategic bidding in continuous electricity auctions: an application to the Spanish electricity market

  • Juan Aparicio
  • Juan Carlos Ferrando
  • Ana Meca
  • Julia Sancho
Article

Abstract

In this paper we introduce an asymmetric model of continuous electricity auctions with limited production capacity and bounded supply functions. The strategic bidding is studied with this model by means of an electricity market game. We prove that for every electricity market game with continuous cost functions a mixed-strategy Nash equilibrium always exists. In particular, we focus on the behavior of producers in the Spanish electricity market. We consider a very simple form for the Spanish electricity market: an oligopoly consisting just of independent hydro-electric power production units in a single wet period. We show that a pure-strategy Nash equilibrium for the Spanish electricity market game always exists.

Keywords

Continuous electricity auctions Spanish electricity market Electricity market game Nash equilibrium 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Anderson, E. J., & Philpott, A. B. (2001). Using supply functions for offering generation into an electricity market. Operations Research, 50(3), 477–489. CrossRefGoogle Scholar
  2. Anderson, E. J., & Xu, H. (2001). Undercutting and overcutting for generator offers in an electricity market. Working paper, Australian Graduate School of Management, University of New South Wales, Sydney, NSW 2052. Google Scholar
  3. Anderson, E. J., & Xu, H. (2004). Nash equilibria in electricity markets with discrete prices. Mathematical Methods of Operations Research, 60(2), 215–238. CrossRefGoogle Scholar
  4. Ausubel, L., & Cramton, P. (1998). Demand reduction and inefficiency in multi-unit auctions. Working Paper, Economics Department, University of Maryland, 98wpdr. Google Scholar
  5. Baldick, R., & Hogan, W. W. (2002). Capacity constrained supply function equilibrium models of electricity markets: stability, non-decreasing constraints, and function space iterations. Working paper, Energy Institute, University of California, PWP-089. Google Scholar
  6. Baldick, R., & Hogan, W. W. (2004). Polynomial approximations and supply function equilibrium stability. Working paper, Center for Business and Government, Harvard University. Google Scholar
  7. Baldick, R., Grant, R., & Kahn, E. (2004). Theory and application of linear supply function equilibrium in electricity markets. Journal of Regulatory Economics, 25(2), 143–167. CrossRefGoogle Scholar
  8. Berry, C. A., Hobbs, B. F., Meroney, W. A., O’Neill, R. P., & Stewart Jr, W. R. (1999). Understanding how market power can arise in network competition: a game theoretic approach. Utilities Policy, 8(3), 139–158. CrossRefGoogle Scholar
  9. Binmore, K. G., & Swierzbinski, J. E. (2000). Treasury auctions: uniform or discriminatory? Review of Economic Design, 5(4), 387–410. CrossRefGoogle Scholar
  10. Day, C. J., & Bunn, D. W. (2001). Divestiture of generation assets in the electricity pool of England and Wales: a computational approach to analyzing market power. Journal of Regulatory Economics, 19(2), 123–141. CrossRefGoogle Scholar
  11. Delgado, J., & Moreno, D. (2004). Coalition-proof supply function equilibria in oligopoly. Journal of Economic Theory, 114(2), 231–254. CrossRefGoogle Scholar
  12. Fabra, N. (2003). Tacit collusion in repeated auctions: uniform versus discriminatory. Journal of Industrial Economics, 51, 271–293. CrossRefGoogle Scholar
  13. Fabra, N., Von der Fehr, N. H., & Harbord, D. (2002). Modeling electricity auctions. Electricity Journal, 15(7), 72–81. CrossRefGoogle Scholar
  14. Fudenberg, D., & Tirole, J. (1991). Game theory. Cambridge: MIT Press. Google Scholar
  15. Green, R. (1996). Increasing competition in the British electricity spot market. The Journal of Industrial Economics, 44(2), 205–216. CrossRefGoogle Scholar
  16. Green, R., & Newbery, D. M. (1992). Competition in the British electricity spot market. Journal of Political Economy, 100(5), 929–953. CrossRefGoogle Scholar
  17. Grossman, S. (1981). Nash equilibrium and the industrial organization of markets with large fixed costs. Econometrica, 49, 1149–1172. CrossRefGoogle Scholar
  18. Hart, O. (1985). Imperfect competition in general equilibrium: an overview of recent work. In K. Arrow & S. Honkaphoja (Eds.), Frontiers in econometrics. Oxford: Basil Blackwell. Google Scholar
  19. Hobbs, B. F., Metzler, C. A., & Pang, J. S. (2000). Strategic gaming analysis for electric power networks: an MPEC approach. IEEE Transactions on Power Systems, 15(2), 638–645. CrossRefGoogle Scholar
  20. Kelley, J. L. (1955). General topology. Princeton: Van Nostrand. Google Scholar
  21. Klemperer, P. D., & Meyer, M. A. (1989). Supply function equilibria in oligopoly under uncertainty. Econometrica, 57, 1243–1277. CrossRefGoogle Scholar
  22. Madden, P. (1986). Concavity and optimization in microeconomics. Oxfordshire: Blackwell. Google Scholar
  23. Nash, J. (1950). Equilibrium points in n-person games. Proceedings of the National Academy of Sciences, 36, 48–49. CrossRefGoogle Scholar
  24. Rudkevich, A. (1999). Supply function equilibrium in Poolco type power markets: learning all the way. Working paper, Tabors Caramanis and Associates, 1702. Google Scholar
  25. Sancho, J. (2003). Análisis del mercado eléctrico español. Master thesis, University Miguel Hernández of Elche (in Spanish). Google Scholar
  26. Von der Fehr, N. H., & Harbord, D. (1998). Competition in electricity spot market: economic theory and international experience. Memorandum n.5/1998, Department of Economics, University of Oslo. Google Scholar
  27. Weber, J. D., & Overbye, T. J. (1999). A two-level optimization problem for analysis of market bidding strategies. IEEE Power Engineering Society Summer Meeting, 18(3), 1054–1061. Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  • Juan Aparicio
    • 1
  • Juan Carlos Ferrando
    • 1
  • Ana Meca
    • 1
  • Julia Sancho
    • 1
  1. 1.Centro de Investigación OperativaUniversidad Miguel HernándezElche (Alicante)Spain

Personalised recommendations