Long-term Market Equilibrium Modeling for

Generation Expansion Planning

Efraim Centeno, Javier Reneses, Ral Garca, Juan Jos Snchez


Abstract--This paper introduces a methodology to
assist generation companies to deal with planning
decisions in a competitive framework. It is based on a
two-stage representation of market equilibrium. A first
level computes an approximate continuous Cournot
equilibrium for the entire model horizon. The second one
discretises this solution separately for each year. Some
aspects of its practical implantation are discussed.
KeywordsElectricity Competition, Electricity
Generation, Market Models, Power Generation Planning
and Operation, Nash-Cournot Equilibrium.
*

I. INTRODUCTION
Deregulation of electricity generation has been
accomplished in a significant group of countries all
over the world and it is a general trend in a large
number of them. This liberalisation of electrical
business implies decentralisation of strategic decisions;
in this new context, generation companies must carry
out generation expansion. These kind of decisions are
difficult to face in the new framework because of the
high level of risk involved on them. Besides, defined
market rules have shown to be insufficient to ensure
energy supply in some cases, like the Californian one.
Because of these contingencies, incentives for building
new plants are usually in continuous discussion and
redefinition.
Mathematical methods to assess and assist
generation planning in the new framework are now
under development. Operation models have
experimented a great development in the last few years
and they have been renewed both from a theoretical
and applied point of view (see [1] and [2]). The modus
operandi of this kind of new models is to incorporate
technical characteristics of power generation systems
within well state economic representation of the
market. A preliminary work in this direction with a
clearly stated theoretical basis is [3].
When it comes to medium- (about one year) and
long-term (several years), market equilibrium
representation arises as an efficient and informative
technique for electrical market analysis. Nevertheless,
the shape of cost functions of electrical generation is
complicated and may lead to difficult-to-manage
formulations when represented with detail.
Consequently, attention must also be paid not only to

This work was partially supported by Endesa.
All the authors are with Universidad Pontificia Comillas (Instituto de
Investigacin Tecnolgica), c/ Alberto Aguilera, 23. 28015 Madrid.
SPAIN (e-mail: Efraim.Centeno@iit.upco.es).
market equilibrium formulation but also to the model
resolution method. Efficient methods have been
proposed to solve this market representation based on
dynamic games theory [4], complementary problem
(including Stackelberg quantity leader approach) [5]
and equivalent quadratic optimisation problem [6]. The
later provides some useful features that will allow the
extension presented in this paper. In addition to
Cournot or Stackelberg equilibrium approaches,
expansion of some systems may be strongly
conditioned by the agents blockage to possible new
competitors entry.
This paper pursues a double aim. First, it proposes a
Nash-Cournot market equilibrium definition to
establish a forecasting of long-term system expansion.
This leads to the formulation of a large problem
difficult to solve due to the size of the possible set of
solutions. Second, an algorithm to find and
approximate solution to this problem is suggested. It is
based in the traditional concepts of static [7] and
dynamic generation planning [8] and actualises
centralised expansion concepts for the new situation. In
this context, the concepts dynamic and static have a
different meaning than in game theory and should not
be confused. This focusing allows the development of
useful tools for GenCos involved in expansion
decisions.
Complexity of the addressed problem makes hard
to take into account the uncertainty of the problem. It
mainly appears in variables as fuel prices, demand, unit
availability, hydro inflows and strategic behaviour of
competitors. Nevertheless, all this elements can be
analysed using this deterministic model via scenario
analysis. These scenarios should at least represent
realistic situations of overexpansion and
underexpansion in the system.
The model considers only the energy product.
Capacity payments have not been directly included, but
they could be represented as production cost
reductions. Long-term fuel contracts and
environmental constraints to emissions have also been
disregarded, but could be easily included in the model.
The site location and other factors related to
transmission network involved in expansion decisions
are not included either. These additional details are
commonly analysed subsequently and by means of
different models, after a size for expansion has been
decided.
Discounted net value is commonly accepted as the
variable to be maximized in the long-term as a
0-7803-7967-5/03/$17.00 2003 IEEE
Paper accepted for presentation at 2003 IEEE Bologna Power Tech Conference, June 23th-26th, Bologna, Italy
measurement of firms value. Some simplifications
have been used to define a long-term benefit function
for each firm intending to approximate in an easy way
this value. It includes energy pool revenues, production
and expansion cost as well as assets residual value.
Taxes, as well as tax saving due to depreciation, have
not been included. If a straight line depreciation is
assumed along plants life span, its impact over new
plant building actualised cost can be neglected in order
to compute market equilibrium.
In section 2, a dynamic planning equilibrium model
is presented to represent long-term market evolution,
leading to a difficult-to-solve problem formulation.
Section 3 introduces a simplified version of the
previous problem that allows obtaining an approximate
solution. The method to improve this approximate
solution using a heuristic searching method is proposed
in section 4. The previously described methods suggest
an algorithm detailed in section 5. The paper is
completed with a study case and conclusions extracted
from the numerical results.
II. DYNAMIC PLANNING EQUILIBRIUM MODEL
Under some weak assumptions, an electricity
market can be represented in the mid-term by means of
Cournot-market model [9], including technical
characteristics [6]. This market representation is also
commonly accepted as suitable for the long-term
scope. The scheme proposed in this paper is based on
Cournot equilibrium, however, it could be applied to
alternative market modeling methodologies preserving
the overall structure.
The scope of the model is considered to be
extended to a number of years (y=1,2,Y) including an
additional one, Y+1, for a residual value computation.
Each year is divided into several load levels
(l=1,2,L). In this model, every firm (e=1,2,...E)
participates in the market by generating a certain
quantity for each year and each load level P
eyl
, which
each company chooses for the maximisation of profit.
Each firm is the owner of a number of generation
groups g, so:
eyl gyl
g e
P P

=

(1)
Besides, the demand is modelled as a decreasing
function of the price . As in many other market
studies, the function is considered to be afine, being
0

its slope, and D
0
its intercept.
0 0
.
yl yl yl yl
D D = (2)
The variables for the generation and the demand are
linked through the power balance equation:
1
E
yl eyl
e
D P
=
=

(3)
The total output of each group is limited by the
maximum capacity of one group multiplied by the
number of similar built groups x
gy
. This value must be
considered as a decision variable only for those groups
that are candidates to be built or to increase their output
capacity. For the other groups it takes the value 1, and
it is a constant. New plants are supposed to start
working at the beginning of each year:
gyl
gyl gy
P x P (4)
In addition, the number of installed groups must be
increasing. If demand increases every year, this
constraint is likely to be non-active.
, 1 gy g y
x x
+
(5)
The discounted benefit B
e
obtained by a firm,
assuming remuneration at the marginal price, is:
( ) ( )
, 1
1 1
1 .
e e Y
Y L
y
e yl eyl eyl ey
y l
B B
d P C E
+

= =
= +
(
+ +
(



(6)
The cost function for the firm includes production
costs C
eyl
and also expansion cost E
ey
in case of any
new plant is installed. A discount rate (1+d
e
)
-1
is
applied for each year; d
e
can be interpreted as the firm
WACC (weighted average capital cost). B
e,Y+1

represents the so-called residual benefit of the firm.
Note that, unlike traditional expansion models, system
reliability is not included as an objective for generation
companies.
Residual benefit B
e,Y+1
is computed under the
common assumption of uniform growing g
e
for each
firm, starting from last year in model scope for every
following years. If firm activities are considered as
unlimited in time, this expression has a finite value
whether g
e
<d
e
.
( )
( )
, 1
1
1 1
1
y Y
Y e e
e Y Y
y Y
e e e
B g g
B B
d d g

+
= +
+ | | +
= =
|
+
\ .

(7)
This representation implies two decision levels.
First, installed capacity is decided for every year.
Second, power output is decided for each load level.
The first decision involves a set of discrete variables
x
gy
, while the second one is represented by a set of
continuous variables P
eyl
. Solution of the model is
defined as a discrete Nash-Cournot equilibrium for the
first level and as a continuous Nash-Cournot
equilibrium for the second.
*
( ) ( )
e gy e gy gy
B x B x e y x g e >
( )
* *
, 0
e
eyl gy
eyl
B
P x
P

(8)
In this formulation of this two-level equilibrium,
x
*
gy
and P
*
eyl
represent the equilibrium point.
After expansion decisions are taken, it is immediate
to compute Cournot equilibrium and obtain the value
of power output for every year and load level. Thus,
the second equation does not create any computational
problem. Unfortunately, in a real expansion study, a
huge number of possibilities should be evaluated to
find values that satisfy the first expression. The next
section proposes a methodology to obtain approximate
solutions.
III. RELAXED DYNAMIC EQUILIBRIUM MODEL
This section makes use and extends the operation
model presented in [6]. Consider again the problem
described by equations (6). An approximate solution
for this problem can be obtained by considering x
gy
as
continuous variables. This is equivalent to accept that
firms can build a portion of a group. Under this
assumption, the cost function can be defined as
continuous and convex, and the existence of the
equilibrium is guaranteed. Now, the problem consists
of a single stage equilibrium, considering power output
in each year and level as the decision variable. Thus:
0 , ,
e
eyl
B
e y l
P

(9)
That leads to:
( )
0
,
0 , ,
eyl eyl gy eyl ey
yl
yl eyl eyl
C P x P E
e y l
P P

=

(10)
This equation states that at the equilibrium point,
marginal revenue is equal to marginal cost, including
operation and expansion cost.
It can be proved that the previous equilibrium
problem is equivalent to the following optimisation
problem:
( )
, 1
,
1 1 1
1
eyl yl
Y L E
y
eyl yl e Y
P D
y l e
mn d C U B

+
= = =
( + +



s.t.
1
:
E
yl eyl yl
e
D P
=
=

eyl gyl
g e
P P

g
gyl gy
P x P

, 1 gy g y
x x
+

(11)
Where
eyl
C denotes a term called effective cost
function and U
yl
is the utility function for the
demand. g P is the maximum output power of group g.
( ) ( )
2
0
, ,
2
eyl
eyl eyl gy ey eyl eyl gy
yl
P
C P x E C P x

= + +

(12)
( ) ( )
2
0
0
0
1
2
yl
D
yl
yl yl yl yl yl
yl
D
U D D dD D D

| |
= =
|
|
\ .

(13)
Under the hypothesis of continuity and convexity in
cost functions, it can be proved that the first and second
order conditions are equivalent to those of the Cournot
equilibrium problem. Note that the dual variable of the
demand constraint is the marginal price of the system.
Moreover, additional technical constraints may be
added to the optimisation problem.
The solution of this problem provides useful
information about trends that may be followed by the
firms planning, including an approximation of
capacity value in the studied horizon. However, in
many cases, fractional expansion values cannot be
accepted.
IV. STATIC PLANNING EQUILIBRIUM MODEL
In order to find an exact solution for the first stage
of the problem, a static planning equilibrium model is
proposed. This model is similar to the dynamic one (8),
but it is only computed for one year of the horizon.
Benefit function is slightly modified: expansion costs
for the year are computed dividing total expansion cost
among the expected life span of the plant s and
including a capital cost coefficient q computed under
the assumption of equal payments along life span.
*
( ) ( )
ey g ey g g
B x B x e x g e >
( )
* *
, 0
ey
el g
el
B
P x
P

(14)
1
.
L
ey
ey yl eyl eyl
l
E
B P C q
s

=
| |
=
|
\ .

(15)
This problem can be established for every single
year. The number of plants in the previous years is
considered as independent decisions and the effect of
present expansion decision on subsequent years is not
considered. Under these assumptions, the size of the
problem is dramatically reduced and can be solved by
enumeration without relaxing the expansion variable.
However, as every year is solved separately, this may
not lead to an overall equilibrium. Other problem than
may arise is that the solution obtained with this method
may not satisfy equation (5), nevertheless under the
hypothesis of sustained increasing demand, this will
not happen.
V. PROPOSED ALGORITHM
The two previous algorithms do not obtain a
satisfactory solution for the expansion problem. The
relaxed dynamic obtains non-integer values for
expansion, while the static one finds a different
solution for each year without guarantying an overall
equilibrium, and probably with incoherence with
previous or following years.
These two algorithms can be combined to obtain an
approximation of the overall solution that satisfies
every constraint. The combined algorithm consists of
four steps for each year of the horizon. For the sake of
simplicity a similar size of new groups has been
assumed in the description.
Starting from first year, and moving forward:
1. Solve the relaxed dynamic problem. Compute and
discretise the number of accumulate groups to be built
until each year by each company. It will be considered
as a central value to search x
*
yg
.
( )
int 1
ye gy
g e
w x

(
= +

(16)
2. Compute the total accumulate number of groups
to be built in the system in one year as:
1
E
y ye
e
z w
=
=


(17)
This value will be used as an estimate value for x
*
y

(total accumulate new groups by year).
3. Enumerate for each year all the possible integer
values of x
yg
that satisfy:
ye gy ye
g e
w k x w k

(18)
0
gy
x

(19)
*
, 1
1 1
E E
g y gy
e g e e g e
x x

= =

(20)
Equation (18) means that we consider as possible
solutions those which lead to build a total number of
new groups each year, close to the total suggested by
the relaxed algorithm. In this equation, k establishes
how close this solution has to be. It should be an
integer small value to be chosen using heuristic criteria
based on experience.
Next equation (19), determines that values of x must be
positives. And finally, equation (20) fixes a lower
bound for system total number of built groups for each
year. This lower bound is the number of groups built
on previous year (zero for the first year).
4. Solve the static equilibrium for every value
enumerated in the previous step and determine Nash
equilibrium by inspection of the benefit matrix. In case
that equilibrium is not found, it should be fixed using
heuristic criteria. (See case study).
The algorithm can be easily extended if different
size of new groups must be considered. Instead of
using number of groups as reference and bound values,
accumulate power by year and company, and total
accumulate system power by year should be
considered.
Nevertheless, this is an unnecessary extension in
many systems, where only a single technology (as
combined cycle gas turbines, for example) is
considered for expansion. Anyhow, in order to reduce
computation time, candidate technologies should be
restricted to a maximum of two.
A simple example with two GenCos (E=2) for a
scope of five years (Y=5) is shown to illustrate the
methodology. Only one technology is considered as
candidate to be built.
TABLE I
SOLUTION FOR RELAXED DYNAMIC PROBLEM (STEP 1)
Year 1 2 3 4 5
GenCo 1 1,22 1,59 1,89 2,32 2,42
GenCo 2
0,53 0,97 1,39 1,81 2,16

TABLE II
ACCUMULATED GROUPS BY COMPANY AND YEAR (STEP 2)
Year 1 2 3 4 5
GenCo 1 2 2 2 3 3
GenCo 2
1 1 2 2 3
Total
3 3 4 5 6

TABLE III
MINIMIMUM/MAXIMUM VALUE FOR NUMBER OF ACCUMULATED
GROUPS BY YEAR (STEP 3)
Year 1 2 3 4 5
GenCo 1 0/4 0/4 0/4 1/5 1/5
GenCo 2
-1/3 -1/3 0/4 1/4 1/5

Consider that the second year is under study and
only one group has been decided to be built in the first
year, by company 1. A value of k=2 has been used for
this example. As shown in TABLE I, TABLE II and TABLE III,
company 1 should built more than 0 and about 4 new
units, whereas company 2 should built more than 0 (the
value 1 is not possible) and about 3. As one unit was
built in the first year and the maximum accumulate
built units for this second year is 3, about 2 new units
should be built in. This reduces the possibilities to be
evaluated in step 4 to the following: (0,0), (0,1), (0,2),
(1,1) and (2,0).
VI. CASE STUDY
A. Case Description
The case study represents a hypothetical large-scale
electric power system. The scope is split into 10 years,
two subperiods for each year (working days and
weekends) and three load levels for each subperiod
(peak, off-peak-1 and off-peak-2). So, there are sixty
load levels. See TABLE IV.
There are five utilities (U1 to U5) in the market
with different sizes. The installed generation capacity
for each of them is detailed in TABLE V. Only utilities
U1, U2 and U3 are considered to be interested on
expand their capacity. The main characteristics of
thermal and hydro units by utility are shown,
respectively, in TABLE VI and TABLE VII. No expansion is
considered for hydro units.
TABLE VIII shows power demand for zero price in
first year. A sustained increase of 3% each year is
considered. Demand slope is 165 MW/(/MWh) for
every level. A single technology for expansion is
considered. Expansion cost is 500 k/MW. Groups for
expansion have a maximum power of 400 MW and a
variable cost of 2.3 /MWh. Discount rate is d = 5%,
growing rate g = 0, span life s = 20 years, and from the
previous values q = 1.605.
TABLE IV
DAILY LEVEL DURATION (HOURS)


TABLE V
UTILITIES INSTALLED GENERATION CAPACITY (MW)


TABLE VI
CAPACITY (MW) AND NUMBER (IN PARENTHESES) OF THERMAL
GROUPS BY UTILITY RANGED BY COST
/MWh
U1 U2 U3 U4 U5
Up to 5 4600 (5) 400 (1) 1000 (1) 300 (1) 0 (0)
5 to 10 0 (0) 100 (1) 1000 (1) 0 (0) 0 (0)
10 to 15 2800 (8) 1300 (3) 1500 (5) 600 (2) 0 (0)
15 to 20 1100 (6) 500 (3) 2800 (11) 1800 (4) 0 (0)
20 to 25 700 (28) 1000 (2) 2700 (9) 0 (0) 0 (0)
Over 25 500 (3) 0 (0) 800 (3) 1000 (3) 0 (0)

TABLE VII
HYDRO GROUPS CHARACTERISTICS BY UTILITY
Utility U1 U2 U3 U4 U5
Number of groups 2 13 6 0 4
Total capacity (MW) 700 9700 2300 0 900
Total inflows (MW) 1400 1940 4600 0 3600
Max. energy (GWh) 600 15700 2300 0 400
Min. energy (GWh) 0 0 0 0 0
Initial res. level (GWh) 360 9420 1380 0 240

TABLE VIII
POWER DEMAND OF YEAR 1 FOR = 0 (MW)


B. Results
TABLE IX shows results for relaxed dynamic
equilibrium. Utility 2 is not interested on expanding its
capacity because it has a number of hydro groups and
its new groups would be scheduled for production few
hours a year, preventing them from investment costs
recovery. For the sake of simplicity it will not be
considered in the next steps. TABLE X contains the
results obtained using the proposed algorithm.
Higher values than those estimated by relaxed
equilibrium model are obtained. These discrepancies
between both methods may be firstly originated by the
definition of expansion cost in static and dynamic
approaches. Alternative definition of this yearly
expansion cost could lead to more similar results.
Secondly, the use of a short horizon for the study (ten
years) in comparison with groups life span (twenty
years) may be also producing this underestimation.
Finally, more specific for this case, are analysed below.
TABLE IX
RELAXED DYNAMIC EQUILIBRIUM RESULTS (NUMBER OF GROUPS)
Year 1 2 3 4 5 6 7 8 9 10
U1 0 1.13 2.26 3.69 4.92 6.14 7.05 8.06 9.33 10.65
U2 0 0 0 0 0 0 0 0 0 0
U3 2.05 3.22 4.26 5.26 6.43 7.58 8.63 9.58 10.41 11.61
z 3 6 8 10 12 15 17 19 21 23

TABLE X
PROPOSED ALGORITHM RESULTS (NUMBER OF GROUPS)
Year 1 2 3 4 5 6 7 8 9 10
U1 2 3 4 8 10 11 11 14 14 18
U2 - - - - - - - - - -
U3 4 4 8 9 11 12 16 19 19 20
Total 6 7 12 17 21 23 24 33 33 38

The results for first year are shown in TABLE XI.
Maximum values for utility 1 in each row is shown in
bold type. Maximum values for utility 3 are similarly
highlighted in each column. Building two new groups
for utility 1 and four groups for utility 2 is the only
option marked as maximum for both utilities and
consequently it is the solution for Nash equilibrium.
Note that the result (2,2) could be almost considered as
an equilibrium point, with a low difference with the
previous. This solution is closer to the one proposed by
the relaxed algorithm. This small difference shows that
the algorithm is very sensitive to modelling of system
and to precision in computation of results.
TABLE XI
UTILITIES 1 AND 3 BENEFIT FOR YEAR 1 FOR DIFFERENT NUMBER OF
ACCUMULATED NEW GROUPS (M)
U1
U3
0 1 2 3 4 5 6
5078.8 5077.3 5086.1 5082.2 5074.7 5075.3 5070.2
0 4958.7 4949.0 4900.7 4885.0 4869.8 4844.4 4827.3
5041.0 5039.6 5057.9 5054.0 5051.5 5044.1 5036.6
1
4971.7 4961.6 4908.3 4895.0 4877.4 4853.8 4836.6
5017.8 5015.6 5020.8 5011.0 5002.3 5001.9 4997.0
2 4974.5 4964.4 4919.3 4903.4 4894.3 4867.7 4849.1
4984.3 4987.5 4999.0 4997.4 4990.6 4986.9 4973.7
3 4983.0 4962.2 4920.2 4901.7 4891.2 4864.6 4851.6
4970.8 4971.5 4980.1 4978.2 4974.3 4974.2 4966.2
4 4981.1 4956.8 4920.2 4901.8 4885.7 4858.7 4845.5
4965.6 4971.5 4975.0 4969.7 4962.4 4952.2 4942.0
5 4973.8 4946.8 4912.5 4895.7 4881.3 4856.2 4846.7
4929.0 4938.6 4938.7 4936.2 4933.4 4932.0 4921.9
6 4982.4 4938.3 4917.1 4898.7 4878.8 4853.7 4844.3

Situation is more complicated in year 2 (see TABLE
XII). There is not a point of equilibrium, but there are
four states that establish a 2x2 region of equilibrium. If
decision of U1 is to install 3 groups, then U3 finds its
maximum installing 5 groups, these decision leads U1
to add a group to reach a maximum. In this situation
U3 prefers to reduce one group to maximize benefit.
For this decision of U3, the best option for U1 is to
build up 3 groups, that was the starting point. The
values (3,4) has been chosen heuristically as
equilibrium point first because the increment that U3
would obtain changing its decision is lower than the
other three changes that appear in the previously
described dynamic. Besides, the difference is
negligible.
TABLE XII
UTILITIES 1 AND 3 BENEFIT FOR YEAR 2 FOR DIFFERENT NUMBER OF
ACCUMULATED NEW GROUPS (M)
U1
U3
2 3 4 5 6 7 8
5467.1 5485.3 5484.5 5481.8 5483.4 5476.9 5461.3
4 5507.9 5453.1 5434.0 5416.2 5387.5 5369.0 5360.6
5459.1 5466.7 5467.4 5461.5 5463.6 5459.3 5449.0
5
5502.9 5453.5 5428.9 5417.1 5386.7 5366.7 5356.9
5450.3 5465.2 5467.5 5458.7 5460.7 5446.0 5433.3
6
5493.1 5444.2 5419.0 5408.4 5378.1 5362.9 5354.1
5426.6 5425.9 5423.2 5417.2 5417.9 5412.8 5402.3
7 5485.5 5446.5 5427.5 5415.0 5386.3 5367.3 5357.4
5415.1 5416.9 5413.9 5407.9 5408.5 5403.4 5393.0
8 5474.8 5438.4 5419.4 5406.9 5378.1 5359.2 5349.2
5407.7 5415.6 5414.0 5407.9 5408.6 5395.7 5380.1
9 5462.7 5425.8 5406.1 5393.4 5364.8 5349.4 5341.8
5400.6 5401.0 5394.2 5386.3 5375.7 5365.5 5354.7
10 5449.4 5419.9 5402.7 5379.6 5359.8 5349.4 5339.1

Year 3, presented in TABLE XIII, raises a different
situation. Two different Nash equilibriums are founded
(7,5) and (4,8). None of these two equilibriums is
dominant with respect to the other. Additionally both
of them have the same total groups value, so the value
of z
y
, cannot used as reference value. An additional
heuristic criteria is required. The later point has been
choosen, because it distributes differences with
continuous equilibrium results for each firm (w
ey
) more
equally.
TABLE XIII
UTILITIES 1 AND 3 BENEFIT FOR YEAR 3 FOR DIFFERENT NUMBER OF
ACCUMULATED NEW GROUPS (M)
U1
U3
3 4 5 6 7 8 9
5971.6 5995.2 5999.5 6001.7 6004.1 5997.5 5984.8
4
5851.5 5815.0 5801.6 5787.6 5773.3 5754.9 5746.0
5928.6 5965.5 5964.9 5966.2 5967.6 5965.0 5955.3
5 5882.4 5836.7 5818.3 5800.9 5785.7 5763.3 5752.9
5921.2 5954.7 5954.4 5952.6 5949.3 5945.1 5934.9
6
5878.3 5834.8 5816.0 5801.3 5780.7 5761.1 5751.3
5914.9 5947.8 5947.0 5948.2 5949.3 5944.9 5933.6
7 5875.2 5831.9 5813.2 5795.7 5770.6 5751.2 5741.2
5906.3 5919.6 5912.1 5902.9 5905.7 5901.5 5891.2
8
5873.9 5839.0 5822.6 5808.7 5776.5 5756.1 5746.2
5883.8 5905.8 5900.4 5893.3 5896.1 5891.9 5881.6
9
5848.4 5832.0 5816.2 5800.7 5768.6 5748.2 5738.3
5876.3 5898.0 5894.6 5891.1 5893.9 5889.8 5878.1
10 5882.9 5820.2 5805.8 5788.5 5756.3 5735.9 5725.9
There is another interesting result for this year. The
point (4,5) is a local equilibrium. A unilateral change
of one group for U1 or U3 causes a benefit decrease.
This point is close the value obtained with continuous
algorithm (2.26,4.26). This kind of situations may also
explain discrepancies between both algorithms, as the
continuous one is based in a local definition of
equilibrium.
Results for year 4 are detailed in TABLE XIV. In this
case a 4x2 equilibrium region appears, similar to the
one presented for year 2. Equilibrium point is selected
with the same criterion used before.
TABLE XIV
UTILITIES 1 AND 3 BENEFIT FOR YEAR 4 FOR DIFFERENT NUMBER OF
ACCUMULATED NEW GROUPS (M)
U1
U3
4 5 6 7 8 9 10
6403.5 6422.9 6425.6 6426.4 6439.3 6439.1 6431.3
8
6503.1 6466.8 6441.9 6424.6 6394.5 6380.8 6373.6
6402.2 6411.1 6405.0 6398.7 6410.0 6409.5 6401.2
9
6494.6 6465.2 6442.1 6428.9 6401.6 6387.7 6380.9
6361.6 6383.7 6387.6 6384.7 6395.3 6394.9 6386.7
10 6506.9 6459.1 6434.2 6396.1 6396.2 6382.3 6375.5
6351.8 6373.7 6377.3 6374.4 6385.0 6384.7 6376.4
11 6499.2 6451.3 6426.3 6412.0 6388.3 6374.5 6367.6
6351.8 6368.4 6372.2 6366.5 6369.5 6366.0 6353.8
12 6485.8 6443.3 6418.1 6406.9 6390.0 6378.6 6371.8
6332.7 6344.6 6352.0 6350.9 6357.8 6357.4 6343.0
13 6492.2 6454.1 6434.7 6408.2 6386.7 6370.9 6361.7
6327.3 6336.5 6343.8 6345.4 6352.1 6346.0 6336.1
14 6482.3 6447.3 6418.0 6398.3 6376.6 6360.8 6349.2

Finally, TABLE XV presents results for year 9. In this
case there is a single equilibrium at the corner of the
table, and both firms decide not to expand their
capacity.
TABLE XV
UTILITIES 1 AND 3 BENEFIT FOR YEAR 9 FOR DIFFERENT NUMBER OF
ACCUMULATED NEW GROUPS (M)
U1
U3
14 15 16 17 18 19 20
9239.6 9223.5 9236.1 9199.7 9149.1 9178.8 9158.7
19 9029.2 9021.4 8983.4 9003.1 9210.7 9078.2 9069.0
9231.2 9235.2 9389.1 9517.9 9250.5 9132.8 9021.0
20 9016.9 9003.3 8857.4 8835.1 8866.2 8985.2 8968.5
9230.6 9227.9 9080.5 9049.2 9185.2 9187.0 9183.2
21 9000.8 8998.3 9090.7 8967.3 9142.3 8991.7 8955.3
9230.8 9227.3 8985.4 9490.6 9162.1 9133.6 9124.9
22 8984.5 8946.6 8992.8 8958.2 8918.0 8904.4 9048.2
9231.2 9227.9 9224.7 9294.1 9120.6 9116.4 9180.0
23 8968.7 9034.6 8952.5 8803.9 9050.6 9141.2 8997.0
9231.2 9249.4 9176.3 9139.2 9202.6 9392.2 9145.1
24 8952.6 8923.8 8954.7 9328.3 8897.6 8693.7 8852.6
9231.2 9227.1 9040.3 9195.6 9210.5 9166.0 9170.5
25 8936.7 8967.4 9020.8 8813.6 8702.6 8891.3 8995.8

The rest of the years present similar behaviours to
some of the presented ones.
From previous results, the value of parameter k, can
be established for future computations. Heuristic search
need large values of parameter k for the reason that
relaxed equilibrium underestimates discrete ones.
TABLE XVI shows minimum required value for each year
as a result of the extensive exploration performed for
the study case.
TABLE XVI
MINIMUM REQUIRED VALUE FOR SEARCHING PARAMETER K
Year 1 2 3 4 5 6 7 8 9 10
k 2 1 3 4 5 4 7 9 8 8

VII. CONCLUSIONS
A methodology that allows the computation of
capacity expansion in a competitive framework has
been presented. The market equilibrium has been
represented using a two-stage model. One level is
based on a continuous Cournot equilibrium and
computes a market equilibrium approximation for the
entire model horizon. A second level discretises this
solution separately for each year.
Results obtained show remarkable differences
between the results obtained using both methods. The
definition of expansion cost in static and dynamic
approaches, the use of short horizons in comparison
with groups life span and the existence of local and
multiple equilibriums are the origin of this
dissimilarities. Nevertheless the approximate method
arises as a useful aid to define equilibrium in an
approximate way.
VIII. ACKNOWLEDGEMENT
The authors gratefully acknowledge the
contributions of Andrs Daz Casado for his work on
the original version of this document.
IX. REFERENCES
[1] B. F. Hobbs. "LCP Models of Nash-Cournot Competition in
Bilateral and POOLCO-Based Power Markets". Proceedings
of IEEE Winter power Meeting, New York, 1999.
[2] C. J. Day, B. F. Hobbs. Oligopolistic competition in power
networks: a conjectured supply function approach, IEEE
Trans. Power System 2002, vol 17, pp 597-607.
[3] N. M. von der Fehr. Capacity Investment and Long-Run
Efficiency in Market-Based Electricity Industries.
Competition in the Electricity Supply Industriy, DH&F
Publishing, Copenhagen, 1995.
[4] P. Murto. Models of Capacity Investment in Deregulated
Electricity Markets. PhD Thesis. Helsinki University of
Technology. Department of Engineering Physics and
Mathematics. Systems Analysis Laboratory, 2000.
[5] M. Ventosa, R. Denis, C. Redondo. Expansion Planning in
Electriciy Markets. Two different Approaches. Proceeding of
14th PSCC, Sevilla, 24-28 June 2002.
[6] J. Reneses, E. Centeno and J. Barquin, "Computation and
Decomposition of Marginal Costs for a GENCO in a
Constrained Competitive Cournot Equilibrium, in Proc 1999
IEEE International Conference on Electric Power Engineering
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[7] A. Ramos. I.J. Perez-Arriaga, J. Bogas, "A Nonlinear
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Expansion Planning", IEEE Trans. Power System 1989, vol 4,
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[8] B. G. Gorenstin, N. M. Campondonico, J. P. Costa and M. V.
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[9] A. F. Saughety. Cournot Oligopoly, Cambridge University
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X. BIOGRAPHIES
Efraim Centeno obtained a Degree in
Industrial Engineering (1991) and a PhD in
Industrial Engineering (1998) at the
Universidad Pontificia de Comillas, Madrid. He
belongs to the research staff at the Instituto de
Investigacin Tecnolgica . His areas of interest
include planning and development of electric
energy systems.
Javier Reneses obtained a Degree in Electric
Industrial Engineering at the Universidad
Pontificia de Comillas, Madrid in 1996. At
present, he is Researcher at the Instituto de
Investigacin Tecnolgica. His areas of interest
include operation, simulation models and
planning of electric energy systems and risk
management strategies in electricity markets.

Rul Garca obtained a Degree in Industrial
Engineering (2001) at the Universidad de
Valladolid. At present, he is Researcher at the
Instituto de Investigacin Tecnolgica. His
areas of interest include planning and
development of electric energy systems.


Juan Jos Snchez obtained a Degree in
Industrial Engineering (2002) at the
Universidad Pontificia de Comillas, Madrid. At
present, he is Researcher at the Instituto de
Investigacin Tecnolgica. His areas of interest
include planning and development of electric
energy systems.