Evaluating the market power and coalition formation in double-sided power market: An analytical decomposition approach

Abstract

In this paper, new indices of the market power are defined to recognize and prioritize the potentials of market power as well as the feasibility of forming a profitable coalition of electricity market players. To this aim, the social welfare optimization problem is formulated and solved in a double-sided power market environment. Then, by forming the Lagrange function, Karush Kuhn Tucker (KKT) conditions are analytically developed. Three major outputs of the above problem including the Locational Marginal Price (LMP), the generation power of each unit and the dispatched elastic load of each Load Service Entity (LSE) are decomposed into basic structural factors. These factors include supply, demand and line congestion effects. Using the coefficients obtained from the structural decomposition, four profit-based market power indices are formulated: (1) profit index of each generator, or GenCo, due to the change of generation units’ bids; (2) profit index of each generator, or GenCo, due to the change of LSEs’ offers; (3) benefit index of each LSE due to the change of generation units’ bids, and (4) benefit index of each LSE due to the change of their offers. The impact of changes in a player’s bidding/offering strategy on its own profits determines the market power of that player. In addition, these changes affect other players' profits. So, the possibility of forming a profitable coalition can be evaluated. The proposed method is simulated on the IEEE 24-bus test system and the proposed indices are calculated and analyzed. Assessment results provide valuable implications for market regulators to monitor the competition level of the power market.