The spot and balancing markets for electricity: open- and closed-loop equilibrium models
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The spot and balancing markets for electricity : open- and closed-loop equilibrium models. / Boomsma, Trine Krogh; Pineda, Salvador; Heide-Jørgensen, Ditte Mølgård.
In: Computational Management Science, Vol. 19, 2022, p. 309–346.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - The spot and balancing markets for electricity
T2 - open- and closed-loop equilibrium models
AU - Boomsma, Trine Krogh
AU - Pineda, Salvador
AU - Heide-Jørgensen, Ditte Mølgård
N1 - Publisher Copyright: © 2021, The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.
PY - 2022
Y1 - 2022
N2 - The increasing penetration of inflexible and fluctuating renewable energy generation is often accompanied by a sequential market setup, including a day-ahead spot market that balances forecasted supply and demand with an hourly time resolution and a balancing market in which flexible generation handles unexpected imbalances closer to real-time and with a higher time resolution. Market characteristics such as time resolution, the time of market offering and the information available at this time, price elasticities of demand and the number of market participants, allow producers to exercise market power to different degrees. To capture this, we study oligopolistic spot and balancing markets with Cournot competition, and formulate two stochastic equilibrium models for the sequential markets. The first is an open-loop model which we formulate and solve as a complementarity problem. The second is a closed-loop model that accounts for the sequence of market clearings, but is computationally more demanding. Via optimality conditions, the result is an equilibrium problem with equilibrium constraints which we solve by an iterative procedure. When compared to the closed-loop solution, our results show that the open-loop problem overestimates the ability to exercise market power unless the market allows for speculation. In the presence of a speculator, the open-loop formulation forces spot and balancing market prices to be equal in expectation and indicates substantial profit reductions, whereas speculation has less severe impact in the closed-loop problem. We use the closed-loop model to further analyse market power issues with a higher time resolution and limited access to the balancing market.
AB - The increasing penetration of inflexible and fluctuating renewable energy generation is often accompanied by a sequential market setup, including a day-ahead spot market that balances forecasted supply and demand with an hourly time resolution and a balancing market in which flexible generation handles unexpected imbalances closer to real-time and with a higher time resolution. Market characteristics such as time resolution, the time of market offering and the information available at this time, price elasticities of demand and the number of market participants, allow producers to exercise market power to different degrees. To capture this, we study oligopolistic spot and balancing markets with Cournot competition, and formulate two stochastic equilibrium models for the sequential markets. The first is an open-loop model which we formulate and solve as a complementarity problem. The second is a closed-loop model that accounts for the sequence of market clearings, but is computationally more demanding. Via optimality conditions, the result is an equilibrium problem with equilibrium constraints which we solve by an iterative procedure. When compared to the closed-loop solution, our results show that the open-loop problem overestimates the ability to exercise market power unless the market allows for speculation. In the presence of a speculator, the open-loop formulation forces spot and balancing market prices to be equal in expectation and indicates substantial profit reductions, whereas speculation has less severe impact in the closed-loop problem. We use the closed-loop model to further analyse market power issues with a higher time resolution and limited access to the balancing market.
KW - Complementarity modelling
KW - Cournot competition
KW - Electricity markets
KW - Market power
KW - Stochastic programming
UR - http://www.scopus.com/inward/record.url?scp=85119301617&partnerID=8YFLogxK
U2 - 10.1007/s10287-021-00418-4
DO - 10.1007/s10287-021-00418-4
M3 - Journal article
AN - SCOPUS:85119301617
VL - 19
SP - 309
EP - 346
JO - Computational Management Science
JF - Computational Management Science
SN - 1619-697X
ER -
ID: 289462227