Generation expansion planning in a competitive electric power industry

This work investigates the application of non-cooperative game theory to generation expansion planning (GEP) in a competitive electricity industry. We identify fundamental ways competition changes the nature of GEP, review different models of oligopoly behavior, and argue that assumptions of the Cournot model are compatible with GEP. Applying Cournot theory of oligopoly behavior, we formulate a GEP model that may characterize expansion in the new competitive regime, particularly in pool-dominated generation supply industries. Our formulation incorporates multiple markets and is patterned after the basic design of the California ISO/PX system. Applying the model, we conduct numerical experiments on a test system, and analyze generation investment and market participation decisions of different candidate expansion units that vary in costs and forced outage rates. Simulations are performed under different scenarios of competition. In particular, we observe higher probabilistic measures of reliability from Cournot expansion compared to the expansion plan of a monopoly with an equivalent minimum reserve margin requirement. We prove several results for a subclass of problems encompassed by our formulation. In particular, we prove that under certain conditions Cournot competition leads to greater total capacity expansion than a situation in which generators collude in a cartel. We also show that industry output after introduction of new technology is no less than monopoly output. So a monopoly may lack sufficient incentive to introduce new technologies.;Finally, we discuss the association between capacity payments and the issue of pricing reliability. And we derive a formula for computing ideal capacity payment rates by extending the Value of Service Reliability technique.