A Sensitivity Approach to Detection of Local Market Power Potential

Market power gives certain market participants the ability to manipulate the market to their advantage when their product is not substitutable by competitors. Identification of generators which have the potential for market power either individually or within a small group is performed using sensitivity information from the linear programming optimal power flow (LP OPF). The impact of network constraints on admissible price perturbations are used to group generators that have the potential to exhibit local market power. Specific price perturbation vectors are found that highlight a constraint-induced locational advantage for these suppliers. In practice, this is most commonly observed in “load pockets,” for which ISO policies mitigate market power.