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Equilibria in investment and spot electricity markets: A conjectural-variations approach

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  • Mousavian, Seyedamirabbas
  • Conejo, Antonio J.
  • Sioshansi, Ramteen

Abstract

We study generation-capacity planning in a restructured oligopolistic electricity market, taking a conjectural-variations approach. We do this through a two-stage model that captures an initial set of investments followed by equilibria in a series of spot electricity markets, in which firms make production decisions. Although we model the generating firms as being quantity-setters, we do not model a Nash–Cournot equilibrium. Instead, we assume that the firms endogenize the impacts of their production decisions on rivals through reaction parameters, giving a conjectural-variations model of the spot-market equilibrium. Equilibrium conditions in each spot market, as a function of the investment decisions, are derived. This allows characterizing an equilibrium at the investment stage. The proposed model allows the derivation of analytical expressions that characterize such multi-stage equilibria. This proposed model provides insights on the outcomes and characteristics of investment decisions in an imperfectly competitive market setting. Such insights may allow policymakers to understand the efficiency implications of oligopolistic market structures.

Suggested Citation

  • Mousavian, Seyedamirabbas & Conejo, Antonio J. & Sioshansi, Ramteen, 2020. "Equilibria in investment and spot electricity markets: A conjectural-variations approach," European Journal of Operational Research, Elsevier, vol. 281(1), pages 129-140.
    • Handle: RePEc:eee:ejores:v:281:y:2020:i:1:p:129-140
    DOI: 10.1016/j.ejor.2019.07.054
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    Cited by:

    1. de Frutos Cachorro, Julia & Willeghems, Gwen & Buysse, Jeroen, 2020. "Exploring investment potential in a context of nuclear phase-out uncertainty: Perfect vs. imperfect electricity markets," Energy Policy, Elsevier, vol. 144(C).
    2. Bjørndal, Endre & Bjørndal, Mette Helene & Coniglio, Stefano & Körner, Marc-Fabian & Leinauer, Christina & Weibelzahl, Martin, 2023. "Energy storage operation and electricity market design: On the market power of monopolistic storage operators," European Journal of Operational Research, Elsevier, vol. 307(2), pages 887-909.
    3. Abate, Arega Getaneh & Riccardi, Rossana & Ruiz, Carlos, 2022. "Contract design in electricity markets with high penetration of renewables: A two-stage approach," Omega, Elsevier, vol. 111(C).
    4. Escudero, Laureano F. & Monge, Juan F. & Rodríguez-Chía, Antonio M., 2020. "On pricing-based equilibrium for network expansion planning. A multi-period bilevel approach under uncertainty," European Journal of Operational Research, Elsevier, vol. 287(1), pages 262-279.
    5. Arega Getaneh Abate & Rossana Riccardi & Carlos Ruiz, 2022. "Contract design in electricity markets with high penetration of renewables: A two-stage approach," Papers 2201.09927, arXiv.org, revised Jun 2022.
    6. Milstein, Irena & Tishler, Asher & Woo, Chi-Keung, 2022. "Wholesale electricity market economics of solar generation in Israel," Utilities Policy, Elsevier, vol. 79(C).

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