Comparative analysis of game theory models for assessing the performances of network constrained electricity markets

Competition has been introduced in the electricity markets with the goal of reducing prices and improving efficiency. The basic idea which stays behind this option is that, in competitive markets, a greater quantity of the good is exchanged at a lower and stable price, leading to higher market efficiency. Electricity markets are different from other commodities mainly because of the operational characteristics, perishability and lack of large storage capability, which may impact the market performances. The network structure of the system on which the economic transactions need to be undertaken poses strict physical and operational constraints. Those physical and operational constraints need to be ensured to guarantee an operating state feasible and when those constraints binding the congested system show remarkable economic impacts. Strategic interactions among market participants with the objective of maximising their surplus must be taken into account when modelling competitive electricity markets. The network constraints, specific of the electricity markets, provide opportunity of exercising strategic behaviour of the market participants. Game theory provides a tool to model such a context. This study provides a comparative analysis of the application of game theory models to network constrained electricity markets with the focus on the strategic behaviour of the electricity producers. Different models such as supply function equilibrium, Cournot, Stackelberg and conjecture supply function are considered and their appropriateness to model the electricity markets is discussed. Under network constraints with reference to the IEEE 30- and IEEE 57-bus test systems, various models are compared in quantitative way to provide analysis of the market performance under different representation of the oligopoly competition in the electricity markets.