Estimation of marginal cost function using bid price and quantity to power market

A major challenge for designers of competitive electricity markets is to devise market rules that limit the capability of electricity producers to exercise market power. Market power is the ability of a firm owning generation assets to raise the market price by its bidding behavior and to profit from this price increase. In addition, an important plan of market monitoring units in long term and competition policy framework is to persuade the participants to bid prices near to their marginal costs. Therefore, estimation of marginal cost function is important in way that regulatory use it to increase competition in electricity markets. Bid price of the power plant to the power market contains some important information that can lead to more exact estimation of their marginal cost. In this paper the marginal cost of a typical power plant is estimated using optimal bidding behavior model in a competitive electricity market and Iran power market data.