Generalized Nash Equilibrium and incomplete energy markets: an illustration by Market Coupling in the European Power System
12:00 - 13:30
"Market Coupling" is currently seen as the most advanced market design in the restructuring of the European electricity market. It also inspires current discussions on the Gas Target Model demanded by ERGEG. Market coupling, by construction, introduces what is generally referred to as an incomplete market: it leaves several constraints out of the market and hence avoids pricing them. This may or may not have important consequences in practice depending on the case on hand. Quasi-Variational Inequality problems and the associated Generalized Nash Equilibrium can be used for representing incomplete markets. Recent papers propose methods for finding a set of solutions of Quasi-Variational Inequality problems. We apply one of these methods to a subproblem of market coupling namely the coordination of counter-trading. We first structure the problem and discuss the economic interpretation of the Quasi-Variational Inequality problem. We then apply the algorithmic approach to a set of stylized case studies in order to illustrate the impact of different organizations of counter-trading and to a prototype model of the Central West Europe market.
The presentation is based on three papers currently under review:
- Smeers Y., Oggioni G, Allevi E. and S. Schaible “Generalized Nash Equilibrium and Market Coupling in the European Power System”.
- Oggioni G and Y Smeers “Degrees of coordination in market coupling and counter-trading”.
- Oggioni G. and Y. Smeers “Market failures of Market Coupling and Counter-Trading in Europe: an Illustrative Model Based Discussion”.