Market Power in Hydro-Thermal Systems with Marginal Cost Bidding

Abstract

Traditionally, electricity markets have been designed with the intention of disabling producer side market power or prohibiting exercising it. Nonetheless it can be assumed that players participating in pool markets and aiming to maximize their individual benefits might depart from the optimum in terms of total system welfare. To recognize and analyze such behavior, system operators have a wide range of methods available. In the here presented paper, one of those methods - deriving a supply function equilibrium - is used and nested in a traditional discontinuous Nash game. The result is a case study that shows that marginal cost bidding thermal producers have an incentive to collaborate on scheduling in order to cause similar effects to tacit collusion.