Oligopolistic Competition of Gencos in Reactive Power Ancillary Service Provisions

The need for a market based approach for reactive power procurement has been recognized by FERC. Due to the localized characteristic of reactive power, regulatory mechanisms are necessary to mitigate the possibility of holding market power by generators. The regulator is responsible for devising the regulatory mechanisms that provide incentives to generators to supply reactive power while preventing the abuse of market power. This paper proposes a mathematical model to simulate the strategic behavior of generators supplying reactive power while considering the system operator´s schedule. The proposed method can be used by the regulator to simulate the market behavior in the reactive power supply. We further study how regulatory policies affect the strategic behavior. An alternative price cap method has been proposed and tested in the numerical example to mitigate the effect of strategic behavior of generators in reactive power procurement by the system operator. The numerical examples are tested on the Nordic 32-bus system.