Abstract
In this paper, we analytically compare centralized and decentralized market designs involving a national and local market operators, strategic generators having market power and bidding sequentially in local markets, to determine which design is more efficient for the procurement of energy. In the centralized design, used as benchmark, the national market operator optimizes the exchanges between local markets and the generators’ block bids. In the decentralized design, generators act as Stackelberg leaders, anticipating the local market prices and the flows on the transmission lines. Clearing of the local markets can be either simultaneous or sequential. The resulting two-stage game with competitive leaders that are not price takers is formulated as a bilevel mathematical programming problem which is reformulated as a Nash–Cournot game, and conditions for existence and uniqueness of market equilibrium are studied. Imperfect information is also considered, resulting from the lack of incentives from the generators to share their RES-based generations. Through a case study, we determine that the decentralized design is as efficient as the centralized one with high share of renewables, using as performance measure the price of anarchy, and that imperfect information has a limited impact on the efficiency of the decentralized market design. Furthermore, we check numerically that there exists an upper-limit on the block bid length maximizing the social welfare under both centralized and decentralized designs.
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Notes
Other approaches exist: in lots of markets, exchanges between local markets come from generators within a real-time market (US), or is separately contracted (EU).
By comparison, the EU system relies on zonal pricing, i.e., there is a unique market price per zone (Smeers et al. 2012). The delimitation of the zones, which may contain multiple nodes, is a difficult problem.
An extensive form game describes with a tree how a game is played. It depicts the order in which players make moves, and the information each player has at each decision point (Osborne and Rubinstein 1994).
The national MOs are responsible for the clearing of their local markets. It can happens either simultaneously or sequentially.
The case where generators anticipate transmission link congestion is for example addressed in Cadre et al. (2015).
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The author would like to thank the two anonymous referees for their feedback, which have greatly contributed to the improvement of the article content.
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Le Cadre, H. On the efficiency of local electricity markets under decentralized and centralized designs: a multi-leader Stackelberg game analysis. Cent Eur J Oper Res 27, 953–984 (2019). https://doi.org/10.1007/s10100-018-0521-3
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DOI: https://doi.org/10.1007/s10100-018-0521-3