A no-arbitrage equilibrium model for the regional electricity market of China

In China, regional electricity markets (REM) have been formed progressively. With the restructuring of the electricity markets, pricing of electricity has the fundamental function with the resource plan in the REM. According to the fact that different province has different electricity price in the REM of China, this paper proposes a no-arbitrage analysis method which can be used universally in finance engineering. It efficiently determines a suitable price by using of the no-arbitrage principle. In order to reach the equilibrium prices of REM, a no-arbitrage mathematic model of the REM is established in this paper. The no-arbitrage criterion, a powerful and general criterion used frequently in modern finance, is not strong enough to produce a single price, only a price range can get from it. Like most researchers, we favor criteria with relative simplicity, strong logicality and it does not rely on arbitrary parameters. Simulative results of testing on one REM of China show the rationality of the proposed method. By using of the proposed no-arbitrage model, the electricity price of each province reaches equilibrium that maintains the competition equity to all participants in the REM. The proposed method can effectively low the risk of bidding strategies in the existing market.