Stability Of Nash Equilibrium And Market Power Analysis In Electricity Markets Considering Contracts For Differences

As the reform of electricity market progresses worldwide,more competition is introduced to electricity markets in different countries.However,due to some technology features,such as instorable electricity,massive investment on power generation and power transmission facilities,the electricity market is generally considered as an oligopoly market.In an oligopoly market,generators have strong market power,namely the power to raise market price and generate profits through the surplus over the marginal cost.The existence of market power could damage the efficient competition in the electricity market massively,thus the electricity regulatory agencies have to assess and analyze the operating conditions of market and the strategic behaviors of participants in the electricity market,in order to formulate regulating policies accordingly and ensure the efficient competition in the market.It is of great value to conduct researches on suppressing market power.Based on the mentioned background and problem setting situation,we used the game theoretical framework and experimental method to analyze market power suppressing effect of contracts for differences and stability of Nash equilibrium in the electricity market considering this specific mid-and long-term contracts.The contract for differences is a kind of contract that participants in the power market use to avoid risk in the spot market.According the different categories of calculating contractual electricity quantity,we have two kinds of contracts for differences,namely absolute ones and relative ones.Firstly,we use the expanded Cournot model and Bertrand model to derive the corresponding Nash equilibrium.Then,we analyze the NE stability of the power market when the relative contracts for differences are introduced in four situations(these situations would be specified in the later part of this abstract).In the following part market power inhibiting effects of two kinds of contracts for differences are discussed from the perspective of theoretical model derivation.Finally we designed a experiment to calculate the equilibrium price,quantity,Lerner index and market efficiency in both Cournot and Bertrand competition market with relative contracts for differences.More specifically,the main research contents and correspondent conclusions are as follows.?In the literature review we concluded the application of experimental economics in the electricity market.Besides,we especially went through the literatures,in which experiments concerning market power are conducted.Based on the pile of literatures we made a table which shows the list of researches concerning experiments in the power market.?We built expanded Cournot models and expanded Bertrand models with introducing absolute quantity contracts for differences and relative quantity contracts for differences into the models accordingly.Based on those four models,we derived the market Nash equilibrium.Based on the quantity adjusting model of Alvarado(1993)and the price adjusting model of Tan(2009),this paper presents analysis of equilibrium stability with considering relative quantity contracts for differences.In the quantity adjusting model,we analyze 4 conditions,namely a market with only one generator and one purchaser,a market with fixed demand,a market with fixed supply and a market with m generators and n purchasers.In the first condition,the fixed price of the contract has to meet specific requirements to achieve stability.In the latter three market conditions,the contracts have increased the stability of electricity market,and the bigger the relative ratio is,the higher market stability is.In the price adjusting dynamic model,we used the dynamic Bertrand model containing relative contracts for differences to work out the market equilibrium,when duopolists in the market choose different prices.Based on the market equibrium price and quantity,we evaluated the stability of the null solution of the linear discrete system p(t(10)1)(28)f(p(t)).Finally we presented a numerical example indicating conditions for the relative ratio in the contracts to satisfy market stability and drawed the conclusion that,the introduction of relative contracts for differences has positive impact on market stability.?Based on the expanded Cournot and Bertrand models,we derived the theoretic model and used the numeric examples to analyze the market power inhibiting effects of absolute quantity contracts for differences and relative contracts for differences.Both model derivation and numeric examples have proved that contracts for differences could lower the market clearing price in the equilibrium condition,thus lowering the ability of oligopolistic producers to manipulate prices,namely controlling the market power.?We used experiments to analyze the market power inhibiting effects of contracts for differences in the electricity market,and tested the effect of relative quantity contracts for differences on strategic behaviors,ignoring the effect of risk controlling.We used both Cournot and Bertrand models in the experiment.According to data from the experiment,the conclusion suggests that the market equilibrium is pretty much close to Nash equilibrium according to theoretical predition and no collusion is observed.In the same time,the assumption that in both Cournot and Bertrand experiments relative contracts for differences have positive effect on suppressing market power is significantly supported.Finally in this chapter we analyzed the varying trend of market efficiency when contractual ratio varies.The result implies that in both experiments the higher the contractual ratio is,the higher the market efficiency is.In the Bertrand market,the conclusion is not significant as in the Cournot market.