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On the efficiency of local electricity markets under decentralized and centralized designs: a multi-leader Stackelberg game analysis

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  • Hélène Le Cadre

    (VITO/EnergyVille Research Center)

Abstract

In this paper, we analytically compare centralized and decentralized market designs involving a national and local market operators, strategic generators having market power and bidding sequentially in local markets, to determine which design is more efficient for the procurement of energy. In the centralized design, used as benchmark, the national market operator optimizes the exchanges between local markets and the generators’ block bids. In the decentralized design, generators act as Stackelberg leaders, anticipating the local market prices and the flows on the transmission lines. Clearing of the local markets can be either simultaneous or sequential. The resulting two-stage game with competitive leaders that are not price takers is formulated as a bilevel mathematical programming problem which is reformulated as a Nash–Cournot game, and conditions for existence and uniqueness of market equilibrium are studied. Imperfect information is also considered, resulting from the lack of incentives from the generators to share their RES-based generations. Through a case study, we determine that the decentralized design is as efficient as the centralized one with high share of renewables, using as performance measure the price of anarchy, and that imperfect information has a limited impact on the efficiency of the decentralized market design. Furthermore, we check numerically that there exists an upper-limit on the block bid length maximizing the social welfare under both centralized and decentralized designs.

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  • Hélène Le Cadre, 2019. "On the efficiency of local electricity markets under decentralized and centralized designs: a multi-leader Stackelberg game analysis," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 27(4), pages 953-984, December.
    • Handle: RePEc:spr:cejnor:v:27:y:2019:i:4:d:10.1007_s10100-018-0521-3
    DOI: 10.1007/s10100-018-0521-3
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