TN!

TRJÕN

Chwong 5:

CHIEN LJ@C OAU THAU THAO

TÚNG TN! TRJÕNG
Vo N¿;gC Oiàu
B/} Môn H§ Th/Ing Oi§n
Trwàng OH Bách Khoa
Email: vndieu@hcmut.edu.vn
 CHIË N LŒ@C OÄ U THÄ U
Õeterminis†ic f0rł71Ult2†İ0G

Block .‘ 8, ğ 2 , ‘, ğBMW
price: r1. s2 . rJ $ ( y+1 j Ź)

Block : H 1 , H 2 ,... , H I MW

1 *2 ï $/ń U (•i+l > •i i ii)

Bids : Pi • P2- •- - • P I$ !•!!!!' (P i ' 1 )
• Seller will maximize
H, ( |3, — C, )V,

• vt is I if dispa†ched, o†herwise zero.

(ii ”» y › ond (p, < py, ›, ond

1

otherwise
• This ćondi†ion says, in effec†, †ha† block
will be dispa†ched be†ween rival blocks j and j
if i†s price lies be†ween †heir prices, and if
the system demand D at this time has not
olrreeoad y been sa†isfied by more meri†orious
dispa†ches.
• Possible part dispatch of blocks is not specif
ically indicated in Vi=0 for simplicity of
presentation, but can be easily incorporated
in the model and the solu†ioc
olgorithms discussed cext.
• Seller moximize

• Where ßi is pref erence function and zi = pi-

ci » 0
• Pref erecce f ucctioc
o {I depends on the operational and
economic reasons

* n =1 -› Fig. b,
* n › 1 -› Fig c oed
Fig c:

Fig a:
Fig b:
• Uncer†ain†y and Temporali†y
° uncertain†y of bid price of rivals
° uncertain†y of demand
° S,(p,) is a dis†ribu†ion func†ion which
deno†es probabiIi†y †hat block i will be
sold if i† were offered at price p,

° Supplier mus† forecas† †ha† rivals bid price

on previous data
° Temporality is due †o consumer response
wi†h price change
• 8idding in a constrained ne†work
° Cons†rain†s on †he system will cause differen†
prices a† differen† nodes
Tronsmission cons†roin†s res†ric†s †he flow
of power from low cos† mode †o
high voJue nodes
° Revenue coIIec†ed from †he consumer will be
more †han †he money paid †o †he genera†ors
° Unsubscribed revenue can be given
†o Transmission righ† holders
 2

icap

Example of constrained network

• Types of Genera†ion Compe†i†ion
• Perfec† Compe†i†ion (max. welfare) soIu†ion:
bid curve provided by each produced is equal
†o i†s marginal cos† func†ion
• Imperfec† Compe†i†ion soIu†ion:
° Each genera†or chooses †he supply func†ion
bid
†ha† maximize it profi† given a fixed set of
rivals bids
° A Nash equilibrium occurs a† a poin† where
no genera†or can increase profi†s by
changing i†s bid
• Monopoly solution: there is a single owner of all
generation.
• Imperfec† compe†i†ion and s†ra†egic bidding
• Strategic bidding by a genera†or is simply
choosing a bid (a strategy) †ha† maximizes
its own profi†s.
• Under many circums†ances, a producers best
strote9y will moke money o† †he expeñ se of
†he consumers . This is
imperfec† compe†i†ioñ
• Considering †he linear bid, †he choice of producer
†o moximize †he profit by choosing †he slope and
†he intercept
• Producer i’s profi†

=—1[( p — b ,t ) -F ( —(b| + m|q j »] q j

2
 2

Producer i’s profit

• Example: Find †he marke† clearing price. Given
†ha†
P›i' 10 + 0.35q1 p,2 =1o + o.4 bg 2

pd\ = 1 oo - o.fi 2d 1
Pd2 = 10o - o.65d 2

Hiet: q1 + q2 = d1 + d2; p,›'• P. Pd1 Pd2

2'
Sol: P* = 4 6 .' 4, 1 1'04, 2 ' 1, 10'3, d2 82
d1
Example: 8idding strategy formulation
• Marke† s†ruc†ure consists of m number of
sellers or IPP and n number of large
consumers.
• These †wo groups of marke† participant
submit linear demand and supply curves
to Power Exchange (PX) and †ry †o maximize
i†s profit by developing an adaptive
strategy.
• This market also includes aggregated load model
for small consumers whose consump†ion is
no† varied by marke† price.
 Lä fganöuma t ...

Pciuo r Exchanga /” IZO

Fixad bad
(n¢rt pa rticipata in Öimand-eÖa b Ö in

Market strucmre for bidding

• Let:
m Independen† Power Producers (IPPs) bid
linear supply curve denoted b A' i ibi
where
= 1, 2,..., m and Pi is power genera†ion of i†h
producer
n large consumers bid linear demand curve
denoted by A = d;L where j = 1, 2,..., n and Lj
is consump†ion o/ jth cus†omer.
• R is marke† clearing price
• PX will receive bid from all marke†
par†icipan†s. Using predicted aggregate load
from small users, PX/ISO will determine MCP
†ha† will balance †he energy demand and
supply.
• The objective of IPP is †o maximize i†s
profi†. Suppose †he power producer i has cos†
func†ion denoted by C;(P;) = e,P, + f,P, 2.
• The objective of power producer can be defined
max P, (n,, h,) —— RP, — C,{P, )

• Similarly, †he objective of large consumer is

†o moximize i†s benefi†. Suppose †he large
consumer j has revenue func†ion denoted by
h,L;2
• The o£ IRax Fi !• i -'*.I ) —- B L i! RL i ! be defiñed
• The †wo objectives are maximized subjec† †o
†he following cons†rain†s:
- Power balance constrain† neglecting loss
a+ I U
i -I
.i- i

where ( is †he aggrega†e load calculated by

9s - KR where K is †he price elas†ici†y
of small customer.
- Power genera†ion and consump†ion limi†
 Cá c van dł cua cô ng ty phâ n phÖ Fbá n le
• Mșc tiêu co bãn Ià gì?
• Thay doi: Cái gì không thay doi? Cái gì sé thay doi?
• Rùi ro: Tác dć;ng thë nào? Quân Iÿ dwłș’c không?
• Chiën Íwłș’c:
î• Thích nghi, Iãnh dąo hay dành chö dś cho'i?
î• Cãi tiën hay cåi tö?

• Kë hoğch hành dčșng & chuan b| to chúc, nhân Íșc

TÖi u•u hoá Ișri nhu§n: TÏîi da
Mșc tiêu cø ban
doanh thu
Tuân thù các quy d¡nh, pháp
quy Täi thieu chi phí
 Ngu'õi bán y Ngu'òi mua

Chät Iw/șng sàn & d|ch vș

pham
0 phát minh/doi mói
TÖi thieu rùi ro/ chäp nh§n
giói hąn cho phép
Dàm bào cung cäp di§n chät
Ii+țrng, on d;inh, tin cïÿy & lièn tșc
Rui ro là gì? Các nguàn/logi rui ro chính
Kinh doanh/tài chính:
ü• Th| trøÒng: giá, Io/ș*ng,
chi phi
ü• Tin dșng: khà năng
thanh toán hay khöng
îhe thșc thi/chi trá các
nghîa vș bàt bu{oc
trong hop döng giao
d/ich (hay khó khàn
vÄ Ïài chinh)
Danh
tiëng: ü•
hinh ành
ü• tai tieng
Bên trong/bên ngoài
Chù quan/khách quan
OiÀu khien dusș'c/không diëu khiÀn
Vân hành:
ü• Hğ thong dičÿn: sș cô
dæông dãy tmyÄn tài
R i ro
Iám hïșn chÄ cöng
suät phát hay truyÄn
tài, sa thãi phș Òi;
kët quà bät
d/inh/khöng nhu' mong ü• Th;i tru'öng diên: a
muõn tù sș thay doi quyël d¡nh sai hay
bät dtnh/biën dong cùa dánh giá sai ve th¡
cãc yÄu tö rúi ro Iryòng
Mô hình hoá
ü• Dș báo
Chính sách/LuğhChính ( " M h FI
° ° *
trț/xá hôi:
îhay doi hay sș khõng Thi¿•c
hiğn: ü• to
chäc chän cùa các chinh
chúc, ü•
sách pháp luíșt cùa
nhân sș,
ngành
Rui ro kinh doanh/tài chính
Lșfi nhuïÿn = Doanh thu- Chi phí

Các yÄu tö rûi ro:

Ln›yng (phę

tãi)

Giá
Žác suat

Sån xuãt tiy

dùng

- Sai Iÿïch so vói diy báo (variance) *a"'^h°uR

- Lô (loss)

- Rúi ro duôi (tail risk/Value at risk) Lai nhuån Loi nhuån/

R 1
 Dy báo phș tai
r • r r .
Dg ba o phy i Ca c ye u phy thuo c
. .
ta to
- Phâ n logi khá eh hà ng:
— Cô ng iy phâ n phÖ ì dign
— Khá ch hà ng mua dign irșc tiË p: cô nç nghi3p, ihuong mąi, dâ n dșng
• Thü i gian:
— Cao diË m/bình ihuò ng/thâ p diË m
— Ngà y là m viêcNhù bâ y/Chù nhğ i, nçà y nghi
— Cá c ngà y Je/kÿ ni¢m
• Thcø fiet: nhięt dg, rnaa/nang/gio, dg am,...
• Dy bá o diÿn nã ng cù a cá c dim v} bá e buô n, xuâ t nhğ p khâ u di¢n
. . . , . .. . ..
- To e dg ła ng imo ng GDP va ehi ee lușc pha t iri en
.. . .
di șø nang quo o gi a
và cá c d{a phuong
• Cáe giài pháp và kËt quà thyc hiÇn tiet kíÇm di3n
 Phân logi dg báo phy ìai
.
• Dp bao dai hgn. thpi gian l0=20 nam, sai so
châp nhțœ 10-20%
. , h. ^ , .
• Dp ba o trung hg n. thœ g ian 5=7 n am, sai
.
so
châp nhțœ zl0 %
. _
• Dp ba o nJ;a n dp bao theo tha. ng, 1-2 na_ m,
..
hgn.
sai sô châp
.
nh:ÿn theo Bć; Công thuœg ż3%
. . ., . . • . •
• Dp ba o di e u do . dp ba o theo nga y, g i o ,
 .
so
sai
châp nhïÿn theo Bć; Công thøomg ż2%
 Phuong pháp dg báo phy tai
• Các phuœig pháp dupc khuyËn khích sù d;ing boi Bč; Công ihuong:
— Phuong pháp ngoșí suy;
— Phuong pháp hói rJuy;
— Phuong pháp h¢ sô dàn hot;
— Phuong pháp tmni,g quan - xu iń);
— Phuong pháp ma,ng noron nhźn ișo;
— Phuong pháp chuyćn gia;
• Các phuœig pháp khác nhau sù dșng mô hình toán khác nhau de thyc hi3n
vi¢c dy báo
• Hj¢n nay, EVN dang sù dçng phuong pháp ngo:;i suy vói d:;ng hàm b3c 2
dê dy báo.
• Phrœig phá p m:¡ng nr-ron nhâ n iąo cho kË i quà dy bá o khá iiÏt vó i sai siÎ
trung bình 0.72%
• Mć;t siÎ phrong phá p kË t hęp giü a mgng nn-ron nhâ n tgo, lÿ thuyË t mó
và h3 chuyên gia dà duqc á p dyng iąi Hà n Quó c, Oà i Loan, Ai C$p,...
 Phuong pháp ngoąi suy
• .
• Mșc ti e u: dyng li
.u .
de xa y
.
. . .
Su du . qua
g
dțmg hàm sÓ dg báo:
DB
/+I = f(t + l) + s
. . .. . . .
• Ha m dg ba o phy ta i hi g n nay cu a EVN
. .
so co
DB
i•, • «(g )’ + h(P,‘ $ + c
 . l.i. gu Lu dupc . .
• Ca c dșng de ti m ca c
. . .
. qua su
ğa
hÇ sô a, b, c cùa hàm sô du báo
 Phuœig phá p
• 2 mô hìW toán:
Mô hình myàn tính: * “ + =, " ^
— Mô hình phi myàn: I° = ‹i„ .\' l" i .\ I °° .\',‘7 º
• Tupng tp nhu phuowg pháp ngoąi suy, phupng
pháp hài quy cúng sö dșng dã ličÿu quá Jé dê
tìm ra các hćÿ sò a, cûa hàm dg báo
 Phuong pháp h¢ SO dà n hô i
. • .• . • _
• Xa c d¡ nh mo i quan hg tupng quan gi u a nhu
câ u diÇn và tă ng tm@g kinh tê. H ÿi sô dà n hô i
duqc xá c dtnh:
" ^* i
: i” " ai
. i
• B•œg .
vi g c thong . . . . . • . .
ke ty lg tang tmøng kinh te va
phș tài, ta xác djnh h¢ sô dàn hôi tè dó dg báo
nhu càu sè dșng dićÿn theo yëu tÖ kinh tË
 Phuong pháp ìucmg quan-xu thê
• D th phș c a y n duqc so sœ h
I

o J ta i
n • w ° u nga hię tq
w $ m •

vói dô thj phș tài cùa nhèng ngày trong quá

Jé, tè dó ch9n duqc dà tht phș täi quá Lã
phù hçp nhàt qua h¢ sË:
Cor reI(X,Y) —-

• T d th¡ qua . . . .. .
. . . . Lu do , dp ba o phy ta i duqc xa y
u o
d¡mg %i bô sung thêm hÇ s3 chuyên gia.
 Các phuong pháp chông kê khác
• Mô hinh trung bính tru@ MA(Moving Average)
• Mô hinh ty hà é qui trung binh tru@ ARMA
(Auto Regression Moving Average).
• Mô hinh ty hà ê qui ket hpp vó i mng binh m@ ARMA
(Auto Regression Integrate Moving Average).
• Mô hinh ty hà ê qui trung bính tru@ vó i cá c bià n
ngogê sinh ARMAX (Auto Regression with Exogenous
varêables).
•. .- . .
• Mô hinh ty hói qui két hpp vói mng binh tru@ vói các
bià n ngogé sénh ARIM LK (Auto Regression Integrate
Moving Average with Exogenous varéables).
Phumig phá p mgng ne-ron nhâ n tgo
• Các dii liÇu dau vào (nhiÇt déj, dé; am, công suat quá khà,
..) dupc thu th$p và sà dyng dê huân luyÇn mdng no-
ron.
r . , .
• Quá trính huân luyÇn mgng làm thay dÔi so gina cac
hÇ
ló p nn tú dó . Sau khi huiln luy$n, mpng dupc sà dyng d$
dy báo phç tái tà các dfi liÇu dâu vào mói.

1›, ,
 . r
So sáW kêt qua dg báo cúa mé;t sô
phuong pháp
Phn‹rng phép dy bá o Sai so trung
bình
Phuong pháp hoi quy 4.96
Phuong pháp hôi quy trung binh ou‹;;i 4.77
Phuong pháp ty hoi qui ket hqp vói trung binh 4.50

Thu$tt oán gen 2.43

Mpng no-ron hoi quy 1.79
M:;ng up-ron nhânt:;o 1.59
Mpng no-ron nhân go ket hpp dieu chinh sai so 0.90
bàng wavelet
Ngti$n: “Load forecasting, dynamic pricing and DSM izi smaG grid: A review”
Dy báo giá diÿn (thț trrãng giao ngay)
S¿ bät d|nh cùa giá di§n chù yéu Các yëu t6 tác d§ng dën s¿ bät
do 3 nguon sau: d|nh cùa giá di§n:

= Cung = Phș tài (nhu cãu)

= Cãu = Giá nhièn Ii¿eu

= Các sę cÖ = NguÖn thúy diğn

= Các sę cö khõng mong muËn

Phuong pháp:
Ï* Co bån: xãy diș'ng Ïù dwói Ièn (boflom-up) -
= Ráng buîÿc tmyÄn tåi
nhà máy, Iwòi truyÄn Òi, phș Òi, chào giá
cùa các thành viên; mõ hinh Ïöi uu bàn
= Sę thao tùng îh! tru’õnğ (market power)
chào nhà máy và phș tài
ù K¿ thuïÿt: îhöng kè, hțic máy
= Ngæòi îham gia th! tru'òng
Quan lÿ rui ro (Distco/Retailer)
Xay di¿’ng khung/quy djnh quån Iÿ rúi ro doanh nghiğp: quy trình,
giói hçm rùi ro, thái dÿî rúi ro và Ișri nhuășn, hg thông mô phòng rúi ro dáng tin cğy
I I
SĂ dșng các công cș tài chính/phái sinh (ùnancial
instruments/ derivatives): bão dãm giá, Iu'/ș'ng, chi phí

Vğn hành tot: Iÿ

• Mua báo hiem kinh doanh, sș cÖ (khi b;i mät nguÖn) danh
mșc
• Sù dșng tôi nu nhà máy tp dùng de phòng sp cô nëu có
• Vïÿn dșng chnrrng trinh qșãn Iÿ phș tâi/DSM: căt giãm
phș tãi dinh khi giá diğn rãt cao
• Sù dșng tôi uu thiët b;i Iu'u trń
• Hğn chë quá tái và chê dćș bão tri Iwói diğn vã thiët b;i
• Luân phlên chia sè phș tãi - vïÿn hành kinh tá
• Cïÿp nhïÿt và bão tri hğ thõng mô phòng rúi ro
Quan lÿ danh mșc (energy portfolio management)
Mșc tiêu: TïÎi da I/și nhuğn kÿ v//ng = Doanh thu - Chi phí

Quyêt d|nh:

- Logng (phę tåi): h/yp d6ng, giao ngay

- Giá bán, giá mua h/șp dong/giao ngay S• Ï

. • -. . › .. .
- Ch iê n Iwșrc. d iêu kh ie n sa n xuat ti¿ du ng
f Âs, *Îb)'
- Chiën Iwșrc: diëu khien phș
tài Ràng bućșc: g(q) <= 0
- V§n hành: cãn bäng năng lrnșng
(pháV
tài, mua/bán), giói hąn dâu vào/ra r(/*.q) <= L
13
Rùi ro: sai Iêch so vói di¿ báo
(variance), Lö (loss/tail risk)
Quan lÿ danh mșc quyË t dțnh

Thay dci loi nhuğn

Sai IêcNrúi ro
mói
Tot Cán nhãc

Cán nhãc
Thay dci sai
ech/rúi ro

i nhuån Lori nhuån/

VaR kj Giá tń
0.19a Lori nhuân
ky vgng mói

ThË nào Ià chğn hoàn

hâo (perfect hedge)?
 dÉng mua bán buôn diÇn ca ban
Hg•p dàng hoán dÔi Hgp dàng trãn (cap)
(Swap)
irá õi b n tÕ
Giá giao ngay ( $ /MWh)

giao ngay( $ /MWh

Gäi
Giá trãn ($300
Giá hoán doi

Ngu'õi mua trà Khõng ai trà/nhttn

ThÕi gian Thói gian

M§t ví dș vË quan lÿ danh mșc rui ro tà i chính
Nguön: Thái Hoàng Quÿnh & Nguyën Bíși Khuè, 2005, °Tinh toânI‹și nhuïșn Ni ro cúa công ty
nguän phât trong th¡ truõrig diiÿn”, Khoa hțic cõng ngh§ di§n Ișc, sö 1-2005
Cõng ty dign Delta bang New South Wales: tong cõng suïÏt 4200 MW, chi phí biën $12-16/MWh, cõng suïÏt
phát trung binh 2880 MW trong háng 6/2004

ProM (S)

Luamg hęp d6ng swap 0% 60ä 65ä 7O°ù 75°ù

Trung binh $31,421,169 $31,397,7Ž7 $31,395,773 $31,393,820 $31,391,866
DȘ I§ch chu% $3,390,3D $1,358,883 $1,189,712 $1,OŒ,6D1 $851,586 16
 dÊng mua bán buôn diÇn khác

* Sàn (floor)

• Dài (Collar)

• H/yp d6ng tu\/ chçin (option): European hay Asian

• Hçrp d6ng hoán d6i theo phç tái (Load following swap): phóng ngiira/chpn
hoàn hào (perfect hedge)

• Các h/¿p d6ng thông minh/sáng tgo khác

Mua bán buôn diÿn & dău tr mÄ (trading & investme
nt)

EVNHA1Of
zvuxcuc EvNs&c Evuc&c
Quÿ - 3 năm tói 3+ dśn 20-30 năm tói

Hqp dÀng mua bán &ao tay (OTC)

Sân giao d!ch hgp d6ng tuong lai

Kh6i liżgng giao d¡ch cao Kh6i Iirțzng giao d!+ thàp

Càu trúc chuån/khóng linh Thay d6iiLinh hoïșt theo nhu cau ngvśi muØbán
hoïșt
Dau tw mm nguon phát
18
G iam rui ro thșc hiÇn: chuâ n bț nhâ n lș c — kÿ nă ng
Thiêt țê thpi tri/òng di§n, th! truòng
khí thâi, năng Iu•çrng tái tąo

D¿ báo giá di§n; Mua bán di§n;

Quån Iÿ rúi ro
D¿ báo phș tài; Quån Iÿ phș Ng«õi mua
tåi
V.§n h,.anh hê.jhông. di,§n;
Kinh te h§ thong ği§n,
Quy hoąch h§ thõng di§n
Lÿ.thuyêt mąch; Giài tích
Ș§ thông di§n; On d!nh h§
thông di§n (phân kÿ thu$t)
Thiët kët nhà máy, trąm
biën áp, v.v... (phân kÿ
thuïÿt);
N gUUO . . . . . . 19
OII33 d ię n, trąm b iên a p, th ie t
bi
diên
Thay dÖi tr ong chúc năng là chúc
. ... .. ›..• - .
Phap lylDieu tiet: thay doi thiêt th!
kê
tru•òng di§n, th;i tru•öng mói liên quan: khí
thåi, năng Iu’/șng tái tąo
Kinh doanh sí: Mua bán (giao ngay/ Ngu'òi bán Ngu"oi mua
tu•ong lai); Phân tích th;i trcòng/kinh
doanh; Quån lÿ danh mșc, Quån Iÿ
rùi ro

Kinh doanh Iè: tiëp th!. thiët ká sån

pham & d|ch vș, d|ch vș/chăm sóc khách
háng; Dș báo & quàn Iÿ phș tài
Kt thu§t: vïÿn hành, båo trì & xây
di¿ng mòi nguön di§n, trąm biën
áp, dc”ong dây, thiët b/i di§n
Quan lJ các rui ro khác
• Công ty nang Iw›ç•ng tio quyÉ•t d;inh dâm bâo cung/càu: quãn tr;i rúi ro tài
chính dài hpn, rúi ro chiÉn Iw¿rc

• H/pp dông dài hgn hay tr dàu ty?

• Oàu tu’ mói hay mua Igi/sáp nht}p công ty hi§n hú'u?

• Ván dÉ• thú•a/thiáu nguôn cung (vd di¿ báo dài hqn)

• Thay doi Iu§t I§, cttu trúc th| trnõ•ng

• Thách thúc các nguon thay thÉt, tái tpo, di¿ trú

• Bat d!nh/rúi ro tài chính rát cao

 Yorket Power
Market p-ower is depned az the abi//{yto withhold capacifi
or
seniices, to foreclose inputmmkeU, orto raise rivalfims’eor›s
in order fo increme pricei to connimers on a sustained
bmñ
without reloted incremea in coxt or xalue. {SERC 2000a)
 Demand elasticity
• II is defined as ration of Oá change in the demand
to the Oá change in price that causes it.

e = ÓÉ1'Í'
— ÓÉ1/ p p dD
o D
=— = óD
— =—
Óp'Í'o Óp/ p D kp D dp

• Negative sign is used to show the elasticity is

positive (due to opposite sign of 4D and dp).
Price

°p
Demand curve

Demand
óD
• Example:

• e for (1) where p = -a.D+p0

P0
e —— PPo HOŸ COHS ŸOŸH Ÿ

• e= 0 for (3)
• e=1 for (2) where D=Æp
• It should be noted that e may be non-constant,
and can vary over the demand curve, due to its
percentage nature.
• It is not the same thing as siope, which is
dependent on the units used for both price and
quantity.
• Consequently, with the non-iinear demand
curves, the exact e given by the discrete
formula above will depend on the start and end
points chosen (or available in the data).
• Since this is not generally desirable, and an
elasticity for an individual point is preferred, the
difference between the start and end prices can be
minimized.

e=—
p
d
D
D
dp
• In perfect competition, the elasticity of demand
becomes irrelevant due to the intensity of
competition.
• In monopoly, only the demand elasticity matters
since there are no competitors.
• In an oiigopoiy setting, the actions of
competitors and elasticity of demand both
influence the market outcome.
 • MARKET POWER
• Definitions:
o Market power is the ability to profit by moving
the market price away from the competitive
lev el.
o Most of the firms have some market powers
and this causes no significant problems if the
amount is small.
• Effects:
o Market power raises price and thereby
transfers wealth from consumers to all the
suppliers in the market.
o Inefficien cy of market.
• Normally, every generator attempt to bid at a
price which is higher than its marginal cost
(MC) to gain the extra benefit.
• Types
o Normal market power
o Negative market power
o Non-market power
o Vertical market power
o Horizontal market power
Di D 2 D 3

Output
- When several firms control a significant share
of market sales, the resulting market structure is
called an oiigopoiy or oiigopsony.
- An oligopoly may engage in collusion, either
tacit or overt, and thereby exercise market
power.
- An explicit agreement in an oligopoly to
affect market price or output is called a
carfe/.
- The behavior of firms in perfect competition or
monopoly can be treated as a simpie
optimization, but an oligopoly requires game
theoretic analysis.
- Monopoly power is an example of market
faiiure which occurs when one or more of the
participants has the ability to infiuence the price
or other outcomes in some general or
specialized market.
- The most commoniy discussed form of market
power is that of a monopoly, but other forms
such as monopsony, and more moderate
versions of these two extremes, exist.
- A well known example of
monopolistic market power is
Microsoft’s market share in PC operating
systems.
- A monopoiy can raise prices and retain
customers because the monopoly has no
competitors.
- If a customer has no other place to go to
obtain the goods or services, he/she either pays
the increased price or does without.
- Thus the key to market power is to
preclude competition through high barriers
of entry.
- Barriers to entry that are significant sources of
market power are control of scarce resources,
increasing returns to scale, technological
superiority
and government created barriers to entry.
• Margin al generator can exercise the market
power.
• Left hand and right hand marginal costs.
• Causes of market power
o Large generator capacity
o Network cons traints
o Additional opportunity to create intentional
congestion
• Factors determine the market
power o Market concentration
o Demand elasticity
o Style of competition
o Forward contract
o Geographical extent of market
• Different approaches to study the market power
o Ex-post analysis of recently restructured market
o Market concentration analysi
o Market simulation ex-ante studies
o Equilibrium modeling

• Market concentration index

o Lerner index or price-cost margin (L)
o Herfindahl-Hirschman Index (HHI)
o Generalized HHI (GHI)
o Basic Market Power Index (BPI)
• Lerner Index
o Measures the markup price above the marginal
cost.
• 1> L >—— 0
o Defined as
• Lerner Index for Monopoly
o L = 1/e
o Proof:
Let demand curve pd = a -
m.q Pro fit will be A = (pd -
MC).q
= (a - m.q - MC)q
For max. profit at q, dA/dq =0
q = (a-MC)/2m
or a = 2m.q + MC
and a = p + mq
hence mq = p-MC
By definition, e = -(p/q).(dq/dp) = p/m.q = 1/L
hence L = 1/e
• Lerner Index for a Cournot Oligopoly
o Supplier chooses their quantity output. Price is
determined by totai suppiy and consumers
demand curve. Suppliers max. profits under the
assumption that all other supplier will keep their
output fixed.
o There are several suppliers and market share is
important. If s= q/O
o L = s/e (s =1 for monopoly).
• HHI
o If s; is the market share of ith supplier, thae/‹ - z( •,) 2
over all suppliers.
o HHI can be any value between 0 and 1, but in iegai
documents it is multiplied by 10,000.
o HHI account for only one factor (concentration).
• Lerner Index for a Cournot Oligopoly
o Supplier chooses their quantity output. Price is
determined by totai suppiy and consumers
demand curve. Suppliers max. profits under the
assumption that all other supplier will keep their
output fixed.
o There are several suppliers and market share is
important. If s= q/O
o L = s/e (s =1 for monopoly).
• HHI
o If s; is the market share of ith supplier, thae/‹ - z( •,) 2
over all suppliers.
o HHI can be any value between 0 and 1, but in iegai
documents it is multiplied by 10,000.
o HHI account for only one factor (concentration).
° HHi is the most widely used measure of
concentration in a market, and HHi is defined as the
sum of the squared market shares.
Two factors, in general, determine the level of
market power that a firm can exercise:
* the elasticity of demand in a market
* the degree of competition among sellers.
° in one of the standard models of oiigopoiy,
symmetric Cournot competition, the price-cost
margin will be
p — MC _ HHI
p e

Thus, the HHi measures directly one of the two

factors that determine the exercise of market power,
but it gives no indication of the eiasticity of demand
and, therefore, a very imperfect indication of the
severity of the market power problem.
• Generalized HHI (GHI)
o GHI is the share-weighted average Lerner index of
a
group of suppliers, assuming all suppliers in the
market are Cournot competitors and
demand eiasticity is 1.
GHI ——
• Basic Power Market Index (BPI)
o The BPI is the basic markup, (p-p*)/p, of a
group of suppliers, assuming all suppliers in the
market are Cournot competitors and the market
demand eiasticity is 1. p* is the competitive
price.
o With constant marginal costs, BPI =HHI
• Market Power mitigation techniques
o Generation Divestiture
o Internal re-organization
 o Bidding contracts
o Demand side bidding
o Price caps
o Bid caps
o Revenue caps and floors
o Contract for differences (one way & two way)
• Market power on demand side
o Monopsony power is the market power
exercised on the demand side with the
intention of lowering the market price.
o An ISO can exercise by interr upting loads or
by curtailments
o Monopsony power can be effective and beneficial
method for combating market power but it can
also be abused.