A simulation tool for short term electricity markets

In a competitive electricity market, generating companies (GENCOs) have to sell their output by presenting bids on the market. A pure operating costs optimization will not be enough as bidding strategies definition requires GENCO to consider other factors such as market structure and its interrelationships, demand forecast level and competitor behavior. Hourly supply curves are the final output of an operation planning decision support model, which is hierarchically articulated in long, medium and short-term components. This paper presents DESPOT (DEcision-support Simulator for POwer Trading), a short-term wholesale electricity market simulation tool that provides unit commitment, system hourly prices, profit and expected bid for a GENCO. The model provides a detailed Italian generation system representation and a market structure based on the rules established by the Italian decree 79/99, which has introduced competition in Italy. A simplified version of the global model is presented and results of the simulations are also provided. Notwithstanding the generation capacity reduction of the dominant GENCO imposed by the Italian law, preliminary results seem to show that the market power of the generation companies is still considerable and this might strongly influence the energy prices.