Calculation of a power price equilibrium

TL;DR

This paper introduces a quadratic programming approach to compute the equilibrium electricity price structure, incorporating traded contracts, transaction costs, and liquidity, with application to the UK power grid.

Contribution

It extends a theoretical model to include real market factors and provides a practical computational method for electricity price equilibrium analysis.

Findings

The model accurately captures the equilibrium price structure.

Liquidity and transaction costs significantly affect prices.

Ramp constraints influence the shape of the price term structure.

Abstract

In this paper we propose a tractable quadratic programming formulation for calculating the equilibrium term structure of electricity prices. We rely on a theoretical model described in [21], but extend it so that it reflects actually traded electricity contracts, transaction costs and liquidity considerations. Our numerical simulations examine the properties of the term structure and its dependence on various parameters of the model. The proposed quadratic programming formulation is applied to calculate the equilibrium term structure of electricity prices in the UK power grid consisting of a few hundred power plants. The impact of ramp up and ramp down constraints are also studied.