A tutorial review of complementarity models for decision-making in energy markets

Abstract

Complementarity models can represent the simultaneous optimization problems of one or several interacting decision-makers, and thus they have become an increasingly important and powerful tool for formulating and solving bottom-up energy market models. This paper provides an overview of the full range of com- plementarity-based formulations and how these can be applied to assist the different market participants and organizations with their decision-making processes. To this end, the first part of the paper introduces the mathematical formulation of some basic complementarity models, which are illustrated by highly simplified but illustrative energy market applications. Considering these models, the second part of the paper is devoted to describing in broad terms four areas of their potential application: electricity markets, emission markets, natural gas markets and econo- mies comprising several interacting markets.