Cournot Equilibrium Analysis for Spot and Forward Gaming in a Transmission Constrained Electricity Market

In electricity markets, generating firms´ gaming in forward contract markets and spot markets is a practically meaningful topic that deserves closer attention. A joint Cournot equilibrium model for firms´ strategic forward contracting and spot market competition is proposed taking transmission constraints into account. This model can be formulated as an equilibrium problem with equilibrium constraints (EPEC) and be solved by a nonlinear complementarity method. A numerical example is presented to verify the effectiveness of the proposed model and solution method. It is shown that if transmission congestion happens and causes the nodal prices rise in a zone, generation firms which owns generation facilities in this zone have incentives to commit more forward sales for their outputs in this zone. More importantly, strategic forward contracting is helpful to mitigate the firms´ market power and improve the social welfare in electricity markets. The impacts of firms´ marginal costs and demand elasticity on the strategic forward contracting are also discussed.