Generation bidding game with flexible demand

TL;DR

This paper models a deregulated electricity market with price-responsive demand, analyzing bidding strategies and equilibrium outcomes through a simplified framework and numerical experiments.

Contribution

It introduces a simple model of generation bidding with flexible demand and identifies a price-symmetric Nash equilibrium using numerical methods.

Findings

Identified a Nash equilibrium in the simplified market model

Demonstrated complex dispatch dynamics despite idealizations

Provided insights into bidding behavior in deregulated electricity markets

Abstract

For a simple model of price-responsive demand, we consider a deregulated electricity marketplace wherein the grid (ISO, retailer-distributor) accepts bids per-unit supply from generators (simplified herein neither to consider start-up/ramp-up expenses nor day-ahead or shorter-term load following) which are then averaged (by supply allocations via an economic dispatch) to a common "clearing" price borne by customers (irrespective of variations in transmission/distribution or generation prices), i.e., the ISO does not compensate generators based on their marginal costs. Rather, the ISO provides sufficient information for generators to sensibly adjust their bids. Notwithstanding our idealizations, the dispatch dynamics are complex. For a simple benchmark power system, we find a price-symmetric Nash equilibrium through numerical experiments.