Price formation and optimal trading in intraday electricity markets

TL;DR

This paper presents a comprehensive equilibrium model for intraday electricity prices considering renewable intermittency, capturing key market features and agent behaviors through stochastic control and game theory.

Contribution

It introduces a tractable equilibrium framework incorporating renewable variability and market impact, with explicit solutions for finite and infinite agent settings.

Findings

Model reproduces empirical price volatility patterns.

Links market features with price dynamics and renewable forecasts.

Provides explicit Nash equilibrium strategies.

Abstract

We develop a tractable equilibrium model for price formation in intraday electricity markets in the presence of intermittent renewable generation. Using stochastic control theory, we identify the optimal strategies of agents with market impact and exhibit the Nash equilibrium in closed form for a finite number of agents as well as in the asymptotic framework of mean field games. Our model reproduces the empirical features of intraday market prices, such as increasing price volatility at the approach of the delivery date and the correlation between price and renewable infeed forecasts, and relates these features with market characteristics like liquidity, number of agents, and imbalance penalty.