An iterative algorithm for profit maximization by market equilibrium constraints

Abstract

The electricity industry has undergone significant restructuring toward deregulation and competition during the last years. In this period, new methologies have been appearing for helping in modeling the operation of the electric companies in market-based enviroments. So far, Cournot-based equilibrium models are the most widely used. The approach used in this paper is intended for modeling the medium-term operation of the system. It is based on the Cournot conjecture, so the firms offer to the electricity market the quanty that maximizes their profit. This model is formulated as a classic production cost model where some equilibrium constraints have been added. These constraints reproduce the first-order optimality conditions of strategic companies. All the constraints needed to represent the detailed operation of the generating units are also taken into account. In this model an iterative algorithm has been implented to accurately compute the system marginal cost included in the market equilibrium constraints. Besides this, a refinement algorithm for hydro scheduling has also been introduced. Results for a cse study of realistic size are presented.