Conundrums measurement for market power

Wholesale power markets operating over transmission grids subject to congestion have distinctive features that complicate the detection of market power and operational inefficiency. In this paper, an engineering procedure is proposed for a given pattern of dispatch to measure the potential for market power for all generators in a network. This procedure is equivalent to a set of factor demand equations in a standard neoclassical model of production. An optimal dispatch, for given sets of offers to sell and constraints on capacity, can be replicated exactly by resolving the dispatch using the optimal nodal prices as offers with no constraints on capacity. Market power exists when the degree of substitutability for power generated at a particular site is low. Withholding capacity and/or raising offers to sell at such a site would be one of the possible ways to exploit market power. Examined measures include the Herfindahl-Hirschman Index (HHI), the Lerner Index (LI), Generator Market Share (GMS), Must Run Ratio (MRR) and relative market power (RMP). The model has been applied on an IEEE 30 bus system, six of which are Generators using MATPOWER, which simulates a full AC network.