Optimal generator bidding strategies for power and ancillary services using game theory

This paper describes a simple method to derive strategic equilibrium solutions for a single Generating Company (GENCO) bidding in electricity markets. This method computes the product mix of real power and the ancillary services of reactive power and spinning reserve supplied by GENCO. Generator capability curves are incorporated into a two-player competitive market model to simulate market auctions for real power and ancillary services. Player 1 is defined as the GENCO entering the auction and Player 2 is the equivalent representation of all other GENCOs competing in the auction. Game theory techniques are utilized to identify optimal Nash Equilibrium solutions for the power market auctions, which are optimal bidding strategies for the competing players. Software was developed to automatically simulate the market auction and identify equilibrium solutions from a defined combination of bidding strategies. Simulations demonstrate that the computed equilibrium solution optimizes the GENCO´s payoff.