In this paper we analyze the impact that capacity payments have on long-term generation capacity investment decisions in liberalized electricity markets considering uncertainty in demand. In order to carry out such an analysis we formulate a bilevel model: in the upper level one generation company maximizes its total profits taking into account capacity payments while the lower level represents various demand scenarios of the oligopolistic market equilibrium via a conjectured price response formulation, which can capture various degrees of strategic market behavior like perfect competition, the Cournot oligopoly and intermediate cases. This bilevel problem is formulated as a Mathematical Program with Equilibrium Constraints (MPEC). We then apply diagonalization, a method where we iteratively solve each company’s MPEC while holding the competitors’ investments fixed which then yields an equilibrium solution. Furthermore a study case is presented where we compare how different values of capacity payments influence the investment decisions.
|Publication status||Published - 2011|
|Event||12th Centre for Competition and Regulatory Policy Workshop - CCRP - Paris, France|
Duration: 7 Jul 2011 → 8 Jul 2011
|Conference||12th Centre for Competition and Regulatory Policy Workshop - CCRP|
|Period||7/07/11 → 8/07/11|