Application of supply function equilibrium model to describe the interaction of generation companies in the electricity market

Abstract

The paper studies the trade in the spot electricity market based on submitting bids of energy consumers and producers to the market operator. We investigate supply function equilibrium (SFE) model, in which generation capacities are integrated into large generation companies that have a common purpose of maximizing their profits. For this case we prove the existence and uniqueness of equilibrium for a linear function of aggregate demand and quadratic costs. The mechanism is tested on the basis of the Siberian electric power system, Russia.