A Decentralized Mechanism for Computing Competitive Equilibria in Deregulated Electricity Markets

TL;DR

This paper proposes a decentralized market mechanism for deregulated electricity markets that ensures efficient competitive equilibria among diverse market participants despite complexities like nonlinearities and informational asymmetries.

Contribution

It introduces a novel decentralized mechanism based on Lagrangian duality that guarantees Pareto efficiency in complex deregulated energy markets.

Findings

Mechanism achieves Pareto efficiency under complex market conditions.

Ensures self-interested participants reach competitive equilibrium.

Operates effectively despite informational asymmetries and nonlinearities.

Abstract

With the increased level of distributed generation and demand response comes the need for associated mechanisms that can perform well in the face of increasingly complex deregulated energy market structures. Using Lagrangian duality theory, we develop a decentralized market mechanism that ensures that, under the guidance of a market operator, self-interested market participants: generation companies (GenCos), distribution companies (DistCos), and transmission companies (TransCos), reach a competitive equilibrium. We show that even in the presence of informational asymmetries and nonlinearities (such as power losses and transmission constraints), the resulting competitive equilibrium is Pareto efficient.