Electricity Markets Cleared by Merit Order—Part II: Strategic Offers and Market Power

In an electricity market cleared by a merit-order economic dispatch we make use of the mixed-integer linear programming (MILP) scheme derived in Part I to find the market outcomes supported by a pure strategy Nash equilibria (NE). From these NE, we identify offer strategies in terms of gaming or not gaming that best meet the risk/benefit expectations of the participating Gencos. To do this, a number of measures of potential profit gain and loss are developed that quantify the notion of risk/benefit under the possible multiple NE. The NE identification scheme is tested on several systems of up to 30 generating units, each with four incremental cost blocks, also showing how market power is influenced by the number and size of the competing Gencos as well as by the imposed price cap.