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Competition and Cooperation in a Bidding Model of Electrical Energy Trade

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  • Dávid Csercsik

    (Pázmány Péter Catholic University
    Centre for Economic and Regional Studies of the Hungarian Academy of Sciences)

Abstract

A cooperative game-theoretic framework is introduced to study the behavior of cooperating and competing electrical-energy providers in the wholesale market considering price-preference rational consumers. We study the physical and economic aspects of the power transmission system operation focussing on the incentives for group formation. We analyze the interactions of generators in an idealized environment described by a DC load flow model where the network is lossless and is operated by an independent network operator who ensures network stability and fulfillment of consumption needs while taking into account the preferences of consumers over generators. We show that cooperation of generators may be necessary to divert consumers from their previous providers. In the second part of the paper we assume an iterative process in which the generators publish their price offers simultaneously, based on which the consumers preferences are determined. We study the dynamics of the prices and profits as the system evolves in time while each coalition is trying to maximize its expected profit in each step. The model deals with network congestion and n − 1 line-contingency reliability as not every generator-consumer matching is allowed to ensure the safe operation of the transmission system. The profit of the generators is determined as the difference between their income and their production cost, which is a quadratic concave function of the production amount. Any non-monopolistic proper subset of the generators may cooperate and harmonize their offered prices to increase their resulting profit. Since we allow the redistribution of profits among cooperating generators, a transferable-utility game-theoretic framework is used. Furthermore, as cooperation affects the outsiders as well, the resulting game is defined in partition function form. The model is able to demonstrate some interesting benefits of cooperation as well as the effect of market regulations and asymmetric information on the resulting profits and total social cost.

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  • Dávid Csercsik, 2016. "Competition and Cooperation in a Bidding Model of Electrical Energy Trade," Networks and Spatial Economics, Springer, vol. 16(4), pages 1043-1073, December.
    • Handle: RePEc:kap:netspa:v:16:y:2016:i:4:d:10.1007_s11067-015-9310-x
    DOI: 10.1007/s11067-015-9310-x
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    1. Churkin, Andrey & Bialek, Janusz & Pozo, David & Sauma, Enzo & Korgin, Nikolay, 2021. "Review of Cooperative Game Theory applications in power system expansion planning," Renewable and Sustainable Energy Reviews, Elsevier, vol. 145(C).
    2. Dávid Csercsik & László Á. Kóczy, 2017. "Efficiency and Stability in Electrical Power Transmission Networks: a Partition Function Form Approach," Networks and Spatial Economics, Springer, vol. 17(4), pages 1161-1184, December.
    3. László Á. Kóczy, 2018. "Partition Function Form Games," Theory and Decision Library C, Springer, number 978-3-319-69841-0, September.
    4. Xue Chen & Jun Li & Zhongbao Wang, 2023. "Equilibrium Decisions for Fresh Product Supply Chain Considering Consumers’ Freshness Preference," Networks and Spatial Economics, Springer, vol. 23(3), pages 771-797, September.
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    6. Du, Jinming, 2019. "Redistribution promotes cooperation in spatial public goods games under aspiration dynamics," Applied Mathematics and Computation, Elsevier, vol. 363(C), pages 1-1.
    7. Bo Shang, 2024. "Cooperation and Profit Allocation Mechanism of Traditional and New Energy Complementary Power Generation: A Framework for Renewable Portfolio Standards," Sustainability, MDPI, vol. 16(20), pages 1-27, October.
    8. C. Ruiz & F. J. Nogales & F. J. Prieto, 2018. "Retail Equilibrium with Switching Consumers in Electricity Markets," Networks and Spatial Economics, Springer, vol. 18(1), pages 145-180, March.

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