Game-Theoretic Capacity Expansion Analysis Under Carbon Emission Constraints

Abstract

In this paper, we develop a long-term capacity expansion analysis model that considers strategic bidding behavior by dominant generation companies together with new entry decisions, including renewables, to meet a long-term carbon reduction constraint. We deploy a centralized quadratic programming formulation of the Nash-Cournot game to analyze day-ahead electricity market prices. In our model, strategic producers simultaneously make investment and production decisions, deploying an open-loop Cournot game. We have implemented the model for Ukraine's day-ahead electricity market, which has been highly prone to market power issues. The case study results show significant inefficiencies in peak prices and explore scenarios of alternative mitigation options and their efficacies. Finally, the case study is extended to also explore implications of a low carbon future through emission-constrained runs, evaluation of the performance-based emission policy, and sensitivity on different portfolios of new renewable investors.