Chance-constrained supply function equilibrium model of electricity markets with wind generation

Abstract

The increase in wind generation in an electric power system also increases the uncertainty in supply and can affect how Generating Companies (GenCos) strategize in the electricity market thereby also affecting electricity prices. The study introduces a method for simulating the effects of different wind generation conditions on GenCo market strategy and on electricity market prices. A supply function equilibrium model is formulated for the electricity market, with a chance constraint added to accommodate the introduction of wind generation resources. The chance constraint used indicates the probability of the demand being satisfied by the supply, which translates to the probability of the amount of generation from wind resources. The study determines the effects of system confidence level, wind penetration level, wind probability parameters, and wind turbine parameters on the market clearing price, GenCo strategy, and GenCo market share. Although the increase in wind generation decreases the electricity market price, prices do not decrease proportionally with respect to increasing wind generation due to the changes in the strategies of GenCos.