Novel approach to assess local market power considering transmission constraints

Abstract

Market power (MP) assessment and mitigation affect the efficiency of the generation market. The traditional indices such as HHI and Lerner index can not express local market power, which caused by transmission constraints. Transmission constraints divide the market into some smaller parts. Some generators can abuse their MP in one part but not in the whole market. This paper describes a new approach to assess market power. The main contributions of the new method can be summarized as following. First, the concept of local market is developed, and the whole power system is divided into several local markets, as transmission congestions dividing the market. In the local markets, there are no transmission constraints so local market power does not exist. Then the local market power index (LMPI) is calculated according to market concentration, transmission constraints, and demand–supply ratio. Based on LMPI, the integrated local market power index which describes the whole picture of market can be obtained. It has been proved that the new approach can assess market power exactly, and identify the critical factor that results in market power and where generators are easy to exercise market power. The finding in this paper is helpful for market monitoring and mitigating market power. Moreover, the new index can be used to evaluate the power grid availability to generation competition and the power transmission expansion planning.