Competition of Thermal Electricity Generators with Coupled Transmission and Emission Constraints

Abstract

AbstractThermal generators’ emissions constitute an externality on which a regulator might wish to impose constraints. In addition, transmission capacity for sending energy may be naturally restricted by the grid facilities. Both pollution standards and transmission capacity impose constraints, coupling the strategies of the agents in their joint strategy space. To force competitive electricity generators to respect those constraints when individual monitoring is unavailable we envisage the regulator solving a generalized Nash equilibrium problem to establish an equilibrium in which the joint constraints are satisfied. If the regulator appropriately modifies the generators’ payoffs then they will play a decoupled game in which they can ignore the information on the joint constraints. For the payoff modification to induce the required behavior, a coupled constraints equilibrium needs to exist and be unique. We borrow from the electrical engineering (EE) literature a three-node network model that has these ...