Incentive pricing for renewable generation in electricity markets

As generation firms are assumed to produce homogeneous product, the models that endeavor to describe the characteristics of power markets, use quantity setting competitions as in Cournot oligopoly models. Some others will compete over the quantity in different prices like supply function equilibrium (SFE). Growing discussions over renewable energy and advocating green energy generation by conservationists have made discriminations between conventional power plants and generators which utilize green energy sources. In this paper, taking into consideration this product differentiation, we modeled the electricity markets in price competing attitude, the decision parameter of each firm in this case is its price and the quantity of production is obtained due to each firm´s individual demand function. The concept of conjectural variations is introduced for this case, and the Market equilibrium is shown to be reachable in both static and dynamic form.