Impact of Long-Term Transactions on Strategic Bidding in the Electricity Market

Abstract

Power producers' profits are determined by the market price in the electricity market and therefore they will adopt certain strategies in market transactions to achieve higher profits. In an electricity spot market that adopts uniform pricing, power producers with considerable generation capacity are able to exercise their market power, given that the market concentration is relatively high at the beginning of market reform. It has been proved that an effective bidding strategy can increase the market clearing prices, so as to increase the profits of the power producer. Fortunately, the introduction of long-term transactions may mitigate the impact of producers' market power, as a great amount of long-term volume is settled at the long-term contract price, which is determined in advance and is less fluctuating than the spot price. Two forms of long-term transactions, the fixed volume contract and the varied volume contract, are studied in this paper. Simulation studies are conducted on a multi-agent platform, where both the long-term and spot transactions of power producers are included, and the total profits of a power producer with or without long-term transactions are analyzed to demonstrate their influence. Meanwhile, the results clearly show that long-term transactions can effectively prevent power producers from exercising market power.