Strategic analysis of electricity markets under uncertainty:: A conjectured-price-response approach

This paper presents a model to address generation companies' medium-term strategic analysis (including yearly forecast and decision-making processes) based on a conjectured-price-response market equilibrium representation that assumes a single node system. This equilibrium is formulated by simultaneous consideration that any of the variables that affect price formation-such as hydro inflows, demand, or fuel prices-are stochastic, by representing them through a scenario tree. It is shown that this equilibrium formulation can be solved by means of an equivalent optimization problem, which in most common cases becomes, a quadratic programming problem. This schema enables taking advantage of the properties of classical medium-term operation optimization models, including clear model structure, reasonable computing solving time, and easy obtaining of dual-information. An annual study case (inspired by the Spanish electricity market) is presented, including two alternative demand levels in summer and three hydro-inflow situations, both in spring and autumn. In addition to the advantages previously mentioned, this approach provides richer results than a deterministic one, allowing companies to fit their policies more accurately to reality, thereby avoiding, for example, excessively optimistic or pessimistic decisions proposed by the deterministic analysis.