A Dynamic Oligopolistic Electricity Market with Interdependent Market Segments

Abstract

We propose a deterministic, discrete-time, finite-horizon oligopoly model to investigate investment and production equilibrium strategies, in a setting where demand evolves over time and the two market-segment loads (peak- and baseload) are interdependent. The players (generators) compete a la Cournot, open-loop Nash equilibria are computed and numerical results are discussed. The model is calibrated with data from Ontario, Canada. We assess the impact on equilibrium strategies of a generation sector with more market power than what is actually the case. We also find a slight difference in the investment sequence when interdependent demand segments are considered. Finally, we analyze the impact of increasing demand elasticities over time, and varying the financial values of the production capacities that remain at the end of the planning horizon. We believe that such a tool is valuable for professionals and scholars interested in the dynamics of production capacity mix (portfolio of technologies) in the electricity sector. It is also of paramount importance for public decision makers who have to simultaneously deal with environmental issues and with price control, both of which are politically sensitive.

doi: 10.5547/ISSN0195-6574-EJ-Vol32-No4-8

Keywords

Investment Dynamics Ontario Electricity Market Oligopoly Dynamic Games Nash Equilibrium Interdependent Market Segments

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