Ex-ante market power evaluation and mitigation in day-ahead electricity market considering market maturity levels

Abstract

Market power is detrimental to the fair operation of the spot market, thus many market power evaluation and mitigation approaches have been put forward. However, due to the market maturity levels and the approaches themselves, excessive/deficient mitigation or high computational burden for a more accurate evaluation in practice are not rare. Therefore, in this paper, we propose a combined market power evaluation and mitigation framework, based on the emerging electricity day-ahead markets, in which the market power mitigation can be achieved ex-ante to the market clearing and can be flexibly adopted according to the market maturity levels during the development of the markets. More specifically, an ex-ante Customized Market Operation (CMO) indicator is first proposed to evaluate the market power of individual generators. Secondly, based on the CMO and the maturity of the market levels, an optimal CMO threshold is derived through the Best and Worst Method (BWM)-Entropy approach to mitigate the market power via limiting individual generators’ offer coefficients. Finally, the proposed CMO-BWM-Entropy approach is applied to the Chinese electricity markets under different maturity levels. Our results indicate that the accuracy of market power mitigation, quantified by the Lerner index, is 10 times higher than other existing ex-ante market power mitigation approaches, and the computational efficiency is 50 times faster than the compared ones.