Analysis of the impact of subsequent markets and mechanisms used to resolve technical constraints on wholesale electricity markets

Abstract

In recent years, there has been an increase in technical and security constraints in power systems. This has been caused by several factors, such as the emergence of distributed generation, the penetration of renewable energies and the active demand response. This new context has augmented the importance of the markets and mechanisms used to resolve those constraints. One of the main assumptions made in the previous models developed in the literature is that since most of the energy is traded in the day-ahead electricity market, this market is sufficiently important and the models can disregard the effects of other markets and mechanisms used to resolve technical and security constraints. Although that assumption could be quite reasonable in the models of the former electricity markets, this thesis shows that an adequate model of the electricity markets must include all the different markets and mechanisms in which the generation companies are involved. Thus, the models that simulate the electricity market cannot disregard the effect of these mechanisms because the behavior of generation companies cannot be accurately modeled without it.

In this context, this thesis studies the effects of different markets and mechanisms used to clear technical and security constraints, such as network congestion, voltage level and reserve requirements, on the behavior of the generation companies in single-price electricity markets in the medium-term horizon. The thesis explores the use and generalization of industrial organization models to this problem. Specifically, the thesis analyzes the application of oligopoly models based on conjectural variations initially developed for the analysis of electricity markets without technical constraints.

A conjectural-variation-based equilibrium model is proposed to study the effect of system congestion. This model is first applied in a two-area power system and subsequently it is generalized in power systems with several areas. A simplified version of this model is used to assess the counter-trading mechanisms implemented in several European countries. A more complex version of this model that incorporates an AC power flow is proposed to study the effect of other network constraints such as voltage level requirements. Finally, this thesis also analyzes the effect of the additional upward reserve mechanism implemented in Spain.