Uniqueness of market equilibrium on a network: A peak-load pricing approach

Veronika Grimm, Lars Schewe, Martin Schmidt*, Gregor Zöttl

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

In this paper we establish conditions under which uniqueness of market equilibrium is obtained in a setup where prior to trading of electricity, transmission capacities between different market regions are fixed. In our setup, firms facing fluctuating demand decide on the size and location of production facilities. They make production decisions constrained by the invested capacities, taking into account that market prices (partially) reflect scarce transmission capacities between the different market zones. For this type of peak-load pricing model on a network we state general conditions for existence and uniqueness of the market equilibrium and provide a characterization of equilibrium investment and production. The presented analysis covers the cases of perfect competition and monopoly—the case of strategic firms is approximated by a conjectural variations approach. Our result is a prerequisite for analyzing regulatory policy options with computational multilevel equilibrium models, since uniqueness of the equilibrium at lower levels is of key importance when solving these models. Thus, our paper contributes to an evolving strand of literature that analyzes regulatory policy based on computational multilevel equilibrium models and aims at taking into account individual objectives of various agents, among them not only generators and customers but also, e.g., the regulator deciding on network expansion.

Original languageEnglish
Pages (from-to)971-983
Number of pages13
JournalEuropean Journal of Operational Research
Volume261
Issue number3
Early online date18 Mar 2017
DOIs
Publication statusPublished - 16 Sep 2017

Keywords

  • Networks
  • OR in energy
  • Peak-load pricing
  • Pricing
  • Uniqueness

Fingerprint Dive into the research topics of 'Uniqueness of market equilibrium on a network: A peak-load pricing approach'. Together they form a unique fingerprint.

Cite this