Fitting electricity market models. A conjectural variations approach .

Abstract

The worldwide electricity industry has been embedded in a significant restructuring process toward deregulation and competition during the last decade. Simultaneously, an important research effort has been made to properly incorporate market features within generation operations models. Cournot equilibrium has been one of the theoretical frameworks most widely used to model market behavior. However, it presents relevant weakness related to its high sensitivity to the demand elasticity. This paper proposes the use of firms’ conjectural variations to overcome this difficulty and shows a procedure to determine them. The method, designed for long-term operation models, infers the implicit values associated to the firms’ residual demand employing only public market information.