Abstract
We study price formation in intraday electricity markets in the presence of intermittent renewable generation. We consider the setting where a major producer may interact strategically with a large number of small producers. Using stochastic control theory, we identify the optimal strategies of agents with market impact and exhibit the Nash equilibrium in a closed form in the asymptotic framework of mean field games with a major player.
Highlights
The structure of electricity markets around the world has been profoundly transformed by the push towards liberalization in the late 90s and, more recently, by the massive arrival of renewable energy production
The aim of this paper is to develop an equilibrium model for intraday electricity markets where a big producer with a significant market share competes with a large number of small renewable producers
We place ourselves in the linear-quadratic setting, exhibit the unique Nash equilibrium for this game in closed form in the framework of mean field games with a major player, and provide explicit formulas for the market price and the strategies of the agents
Summary
The structure of electricity markets around the world has been profoundly transformed by the push towards liberalization in the late 90s and, more recently, by the massive arrival of renewable energy production. In Evangelista and Thamsten (2020), the authors study a market with a finite number of small players and a major player with first-mover advantage and information asymmetry, and characterize the solution in terms of a McKean–Vlasov FBSDE in a more general setting than that of Fu and Horst (2020). Unlike the articles (Evangelista and Thamsten 2020; Fu and Horst 2020), which study leader-follower games in financial markets, we consider a stochastic terminal constraint, characterize the equilibrium in explicit form, and show how an ε-Nash equilibrium for the finite-player game may be constructed from a mean field game solution.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
