Abstract
Bottom-up power market models based upon economic principles with incorporation of engineering details, such as the transmission grid, and calibrated with real market data are powerful tools for market and policy analysis. This chapter describes a step-by-step process to build a power market model when there is no dominant firm in the market. We begin with a single-area cost-minimization problem when the market under consideration is subject to fixed demand. The chapter then introduces how to reformulate the problem as a social-surplus-maximization problem through parameterized demand curves. This chapter next illustrates a decentralized way of solving the model by formulating it as a complementarity problem. We conclude this chapter by pointing out how the models can be extended to study other energy and environmental policies such as renewable portfolio standards and tradable performance-based standards.
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Notes
- 1.
When the generating units are arranged in ascending order of their marginal cost of production, the order is referred to as “merit order” of production.
- 2.
Note that notation of non-nested summation, \(\sum _{h,t}C_hB_tx_{ht}\), is equivalent to the nested summation, \(\sum _h\sum _tC_hB_tx_{ht}\).
- 3.
The sign “\(\perp \)” defines the complementarity condition. For vectors \(\mathbf{x}\) and \(\mathbf{y}\), the condition \(\mathbf{0} \le \mathbf{x} \perp \mathbf{y} \ge 0\) indicates that \(\mathbf{x} \ge 0\), \(\mathbf{y} \ge 0\), and \(\mathbf{x}^T\mathbf{y} =0\).
- 4.
See for example, [10]. The U.S. Environmental Protection Agency (EPA) also maintains summarized datasets on the operation and performance of power plants in the U.S. [9]. The hourly information on the output, emissions, heat inputs, and other operational data of power plants in the U.S. are also publicly available [8].
- 5.
The maximal energy that a power plant with a capacity of X can possibly produce in a year if it is operated at a full capacity is equal to \(Y=X\times 8{,}760\). The ratio of Y to the total energy that is typically produced is termed the “capacity factor” of that power plant. This is an empirical measurement of the availability of a power plant. For example, a peaking combined-cycle power plant could have a capacity factor of less than 0.1 or 10%, indicating that it is operated less than 10% of time. A baseload power plant can be operated more than 90% or 0.9 of the time.
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Chen, Y., Siddiqui, A.S., Tanaka, M. (2020). Analysis of Power System Operations with Non-Dominant Firms. In: Analysis of Environmental Policy in the Power Sector. International Series in Operations Research & Management Science, vol 292. Springer, Cham. https://doi.org/10.1007/978-3-030-44866-0_4
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