Medium-term generation programming in

competitive environments: a new optimisation

approach for market equilibrium computing
J. Barqu!ın, E. Centeno and J. Reneses

Abstract: The paper proposes a model to represent medium-term hydro-thermal operation of

electrical power systems in deregulated frameworks. The model objective is to compute the
oligopolistic market equilibrium point in which each utility maximises its profit, based on other
firms’ behaviour. This problem in not an optimisation one. The main contribution of the paper is
to demonstrate that, nevertheless, under some reasonable assumptions, it can be formulated as an
equivalent minimisation problem. A computer program has been coded by using the proposed
approach. It is used to compute the market equilibrium of a real-size system.

1 Introduction structure which strongly resembles classical optimisation

Progressive introduction of competitive markets, in Spain as
well as in other countries, requires the development of new
operation and planning tools, able to cope with the tasks
traditionally made by tools designed for a centralised
environment.
Among these tasks is medium- and long-term hydro-
thermal co-ordination. An approach, common to several
proposed models, is to predict the future operation of the
system by finding a market equilibrium. It is defined as a set
of prices, generator outputs, consumption and other
relevant numerical quantities which no market participant
would want to alter unilaterally by changing its behaviour.
In game theory, it is a Nash equilibrium.
Under some restrictive assumptions, it is possible to find
this equilibrium by maximising a profit function for one
agent [1, 2]. It is also possible to apply game theory [3],
iterative methods based on a representation of the bidding
process [4], or genetic algorithms [5].
The market equilibrium is mathematically characterised
by a set of equations and inequalities. Some of the
equations are the so-called complementary conditions,
traditionally difficult to solve. However, it has been
proposed to deal with this issue the use of techniques as
heuristics [6], the linear complementary problem [7, 8] and
the inclusion of equilibrium constraints [9].
The approach of the model proposed in this paper is
different from the above. The market is represented
assuming as linear and known the adjustment of production
that generator companies will produce as a response to price
variation [10]. It is shown that, under some reasonable
assumptions, the solution of the market equilibria condi-
tions is equivalent to the solution of a minimisation
problem. Furthermore, the resulting problem has a
r IEE, 2004
IEE Proceedings online no. 20040055
doi:10.1049/ip-gtd:20040055
Paper first received 24th September 2002 and in revised form 19th May 2003
The authors are with the Instituto de Investigaci!on Tecnol!ogica (IIT),
Universidad Pontificia Comillas (UPCO), Alberto Aguilera, 23, Madrid
28015, Spain
of hydro-thermal co-ordination, which allows the use of
proven techniques.
The model presented in this paper disregards any
network effect: it is a single bus model. On the other hand,
it allows for the consideration of different strategic
behaviour by the generation utilities. Some of these
behaviours are the perfect market and the Cournot
competition market [11].
2 Market model
This Section describes the market model. Only the single
period case is analysed, to simplify the notation. However,
the generalisation to the multiple period case is immediate,
as shown in Section 4.
Let us assume that each one of the n system utilities
makes a linear offer:
Pi ¼ Pi0 þ ai l i ¼ 1; :::; n ð1Þ
Pi is the offered power by the i utility, l the demanded price,
and Pi0 and ai two constants which characterise the linear
offer. Note that Pi includes the generation offer, as well as
the pumping offers, which are considered to be negative
generations.
There is also a demand equation:
D ¼ D0  a0 l ð2Þ
0
D is the inelastic demand, which is assumed to be known.
a0 represents the demand elasticity, which could possibly be
caused by small generation utilities not explicitly considered
in the model.
Given Pi0 , ai, D0 and a0, the market clearing price l,
generated powers Pi and demand D are computed by
solving the system formed by (1), (2) and the generation–
demand balance equation:
X
D¼ Pi ð3Þ
i
Let us analyse the situation from the point of view of utility
1. To compute its offer (i.e. the Pl0 and a1 coefficients) it
must make some assumptions on the offers that the other
utilities are going to send (i.e. it must have some idea of the

IEE Proc.-Gener. Transm. Distrib., Vol. 151, No. 1, January 2004 119
coefficients Pi0 and ai, ia1). For each particular assumption even enables the choice of one of them as the equilibrium
on these coefficients, there is a residual demand curve, [12].
! On the other hand, realistic aI can be estimated from the
X X X slopes of the historical offer curves in the neighbourhood of
0 0
P1 ¼ D  Pi ¼ D  Pi  l ai ð4Þ
i
the clearing point. In any case, the system behaviour from
i6¼1 i6¼1
perfect competition (aI ¼ N) to Cournot competition
So long as no contracts are considered, the power cleared in (aI ¼ 0, usually considered to be the worst kind of
the market Pi is equal to the physical generated power Pi. oligopolistic competition) can be studied systematically.
Therefore, this curve relates the generated power P1 and the The proposed model can be generalised to include
clearing price l. It can be written as l ¼ l(P1). Given this contracts signed by the utilities. Two kinds of contracts
curve, the utility 1 offer must maximise its profit, which is are considered in this paper:
assumed to be
1. Physical contracts. In these contracts the utility agrees to
B1 ¼ lðP1 ÞP1  C1 ðP1 Þ ð5Þ generate a certain power Gki at price lGk
I (i denotes the utility
The first term represents the market income, and the second and k identifies the contract).
one the production cost. By differentiating and zeroing, 2. Contracts for differences. In these financial instruments,
@C1 1 the utility contracts a power Hil and it is paid by the
l  P P1 ¼ 0 ð6Þ difference between the clearing price l and an agreed price
@P1 ai
i6¼1 lHl
I (i denotes the utility and l identifies the contract).

The optimality second order condition reads

@ 2 B1 2 @ 2 C1 When physical contracts are being considered, generated
2
¼ P  0 ð7Þ power Pi is different from the offered power to the pool Pi :
@P1 ai @P12
i6¼1 Pi ¼ Pi0 þ ai l ð10Þ
There are, of course, equations like these ones for each The total generation Pi is the sum of the pool market
utility. Two limit cases can be considered: generation Pi and the generation under physical contracts:
X
1. aI ¼ 0, i ¼ 1,y. In this case, each utility offers the fixed Pi ¼ Pi þ Gki ð11Þ
amount Pi0 . This situation is usually called the Cournot k
equilibrium. Equation (6) is then
The utility profit is
@Ci 1 X X
l  Pi ¼ 0 ð8Þ Bi ¼ lPi  Ci ðPi Þ þ lGk k
i Gi þ ðlHl
i  lÞHi
l
ð12Þ
@Pi a0 k l

By using (11), the previous equation can be written as

2. aI ¼ N, i ¼ 1,y. In this case, (6) becomes X
Bi ¼ lPi  Ci ðPi Þ þ ðlGk
i  lÞGi
k

@Ci k
l ¼0 ð9Þ X
@Pi þ ðlHl
i  lÞHil ð13Þ
l
These equations correspond to the case of having a perfect
market. Assuming that the demand behaves according to (2), the
It must be fulfilled that 0rairN in order to have system of equations (6), (2), (3) is modified to read:
increasing bidding curves. On the other hand, it is possible !
to find a solution of the equation system formed by (6), (2) @Bi @Ci 1 X X
l k
¼l P Pi  Hi  Gi
and (3) for any set of ai. Given this solution, the coefficient @Pi @Pi aj l k
Pi0 can be computed in such a way that the offer curve j6¼i
includes the clearing point. In other words, the proposed ¼0 ð14Þ
procedure for the computation of the market equilibrium is:
1. Assume a set of ai. D ¼ D0  a0 l ð15Þ
2. Solve the system formed by equations (2), (3) and (6), X X X
obtaining a solution P1,y, Pn, l. D¼ Pi ¼ Pi  Gki ð16Þ
i i ik
3. Compute Pi0 ¼ Pi  ai l.
Note that the demand D is the market demand (total
demand is market demand plus physical contracts demand).
The computed offer curves are a Nash equilibrium. Second order conditions do not change with respect to the
Furthermore, if any utility changes its offer curve (for previous ones.
instance, by sending a nonlinear offer curve), it does not
obtain an increase of its profit. 3 Equilibrium computation by optimisation
In this paper, supply function competition is being
considered. In a deterministic setting, there is a continuum Equations (14)–(16) can be obtained from the solution of
of Nash equilibria. The proposed procedure parameterises the minimisation problem:
this continuum by aI (every set of nonlinear bidding curves X
which clears at the price computed by solving (2), (3), (6), min Ci ðPi Þ  U ðDÞ
Pi ;D
i
and has slopes aI at the clearing point, is a Nash X X ð17Þ
equilibrium). Short-term uncertainty can reduce the set of s:t: Pi ¼ D þ Gki
admissible equilibria and, in certain highly idealised cases, i ik

120 IEE Proc.-Gener. Transm. Distrib., Vol. 151, No. 1, January 2004
The effective cost functions Ci ðPi Þ are defined as
Ci ðPi Þ ¼ Ci ðPi Þ
" !#2
1 X
þ P Pi  Hil þ
2 aj l k
j6¼i
So, effective cost is real cost plus a penalty term related to
the excess (or defect) real generation with respect to the
contracted generation.
The utility function U(D) is defined as
ZD  period p
1 0 D2
U ðDÞ ¼ lðDÞdD ¼ DD 
a0
0
The clearing price l is the Lagrange multiplier of
the constraint. These facts are proved in the Appendix
(Section 8).
In the limit case of having an inelastic demand (D ¼ D0,
or a0 ¼ 0), the utility function is not well defined. However,
in this case, the equilibrium equations result from the
solution of
X a linear combination of decision variables.
min Ci ðPi Þ
Pi
i
X X
s:t: Pi ¼ D0 þ
i ik
As before, the market clearing price is the constraint
multiplier.
4 Power system model
Previous results allow computing market equilibrium in a
real power system, including its technical characteristics. It
is necessary to generalise them to a multiple period case, to
define cost functions for each utility and to include technical
constraints.
As shown, it is possible to use any convex cost functions
and technical constraint. The power system model presented
uses only linear constraints with the objective of finding the
solution by using linear programming (LP). So, the
quadratic penalty term is approximated by a linear
piecewise approximation.
System characteristics that require the use of integer
variables, such as minimum power generation of thermal
units, or start-up and shutdown costs, have not been
included. The reason is that, if included, the cost
function is nonconvex and, therefore, it is not possible to
guarantee that the minimum is a market equilibrium
point. However, it would be possible to include this
kind of characteristic and to consider the solution of the
problem with integer decision variables as an equilibrium
approximation.
More complex modelling, especially regarding the hydro
subsystem, is possible (for instance, including a detailed
topological reservoir representation). However, the follow-
ing model is adequate to represent the medium-term
behaviour of real-size systems, such as the Spanish one.
4.1 Time representation
The model scope is divided into periods (weeks or months),
denoted as p. Each period is divided into subperiods,
denoted as s. A subperiod consists of several load levels,
denoted as b. Each level of a subperiod and a period is
characterised by its duration:
lpsb duration of load level b of subperiod s and period p.
IEE Proc.-Gener. Transm. Distrib., Vol. 151, No. 1, January 2004
4.2 Decision variables
The power system consists of a group of thermal and hydro
units owned by different utilities:
X tjpsb power generation of thermal unit j in level b of
Gki ð18Þ subperiod s and period p
hmpsb power generation of hydro unit m in level b of
subperiod s and period p
bmpsb power consumption of pumped-hydro unit m in
level b of subperiod s and period p
rmp energy reservoir level of hydro unit m at the end of
smp energy spillage of hydro unit m in period p
ð19Þ
2 Dpsb demand in level b of subperiod s and period p
D0psb auxiliary variable equal to Dpsb
2
Pipsb generated power (pumping consumption excluded)
of utility i in level b of subperiod s and period p
Pip0 sb auxiliary variable equal to Pipsb
2
Generated power, as will be shown later, is computed as
ð20Þ
Gki 4.3 Parameters
(a) Thermal units are supposed to have constant heat
rate:
tj maximum power generation of thermal unit j
dj heat rate of thermal unit j
qj EFOR of thermal unit j.
oj owner utility of thermal unit j.
(b) Hydro units are represented as a single group with
pumping capability. Every hydro unit has an associated
reservoir and may have pumping capability. The maximum
hydro power of each unit depends linearly on the reservoir
energy storage. Run-off-the-river production is considered
separately for each utility:
bm maximum pumping power consumption of hydro
unit m
rmp maximum energy reservoir storage of hydro unit m at
the end of period p
rmp minimum energy reservoir storage of hydro unit m at
the end of period p
fipsb run-off-the-river hydro energy for utility i in level b of
subperiod s and period p
Imp hydro inflows (except run-off-the-river) of hydro unit
m in period p
rm0 initial energy reservoir level of hydro unit m
rm performance of pumping for hydro unit m
om owner utility of hydro unit m
um, vm constant and linear term of relationship between
reservoir storage and maximum power for hydro unit m
(run-off-the-river hydro energy is not included)
(c) Demand has a linear relationship with the price for
each level, subperiod and period:
Dpsb
0 inelastic demand in level b of subperiod s and period
p
a0psb demand slope in level b of subperiod s and period p
(d) offer also has a linear relationship with price for each
level, subperiod and period:
121
aipsb bidding slope for utility i in level b of subperiod s and (e) Piecewise approximation of quadratic values for
period p demand. There is a constraint for each segment, period,
(e) contracts are supposed to be different for each load subperiod and level,
level, subperiod and period:
D0psb
ðDXpsbt Þ2 þ 2DXpsbt Dpsb ð30Þ
Gikpsb quantity (power) of physical contract k for utility i
in level b of subperiod s and period p (f) Piecewise approximation of quadratic values for
lGikpsb Price of physical contract k for utility i in level b of generated power. There is a constraint for each utility,
subperiod s and period p segment, period, subperiod and level,
Hilpsb quantity (power) of contract for differences l for
utility i in level b of subperiod s and period p Pip0 sb
ðPipXsbt Þ2 þ 2PipXsbt Pipsb ð31Þ
lHilpsb price of contract for differences l for utility i in level b
of subperiod s and period p
For differences contracts, this is equivalent to considering 4.5 Objective function
them indexed to an average price lH The objective function (OF) includes total system operation
il for each utility and
contract. It is easy to prove that costs, additional quadratic costs and demand utility
P H function (see (17)):
lilpsb Hilpsb lsb X
H psb
lil ¼ P ð21Þ OF ¼ Ci  U ð32Þ
Hilpsb lsb i
psb
X X
(f) Generated power for utility i in level b, subperiod s and Ci ¼ dj lpsb tjpsb
period p is computed as a linear combination of decision i jpsb
" !#
variables, X lpsb Pip0 sb X X
X X þ P  Pipsb Gikpsb þ Hilpsb
Pipsb ¼ tjpsb þ ðhmpsb  bmpsb Þ þ fipsb ð22Þ ipsb
ai0 psb 2 k l
i0 ¼
6 i
j=oj ¼i m=om ¼i

(g) Parameters for linear piecewise approximation of ð33Þ

quadratic variables: each quadratic function is approxi-
mated with t segments: X lpsb
D0psb

U¼ Dpsb D0psb  ð34Þ
DXpsbt values of demand where D2psb is approximated. a
psb 0psb
2
There are t values in level b of subperiod s and
period p 4.6 Marginal price computation
PX 2
ipsbt values of power where Pipsb is approximated. There One of the main features of the proposed approach is that
are t values in level b of subperiod s and period p marginal price is directly obtained from the results of the
optimisation problem. It is directly obtained from demand
4.4 Constraints for each level, subperiod and period,
(a) Decision variable bounds: D0psb  Dpsb
lpsb ¼ ð35Þ
tjpsb  ð1  qj Þtj ð23Þ a0psb

hmpsb  um þ rm;p1 vm ð24Þ

If demand is inelastic, then price is computed from the
bmpsb  bm ð25Þ dual variable of the power balance constraint (28) as
ppsb
rmp  rmp  rmp ð26Þ lpsb ¼ ð36Þ
lpsb
*
(b) Final level for each hydro unit (p is the last period),
rmp ¼ rm0 ð27Þ
(c) Power balance for each period, subperiod and level. 4.7 Additional economical results
The dual variable of each one of these constraints will be
referred as ppsb. (a) Profit for each utility in each level, subperiod and
X X X period is obtained as its income minus its costs,
tjpsb þ hmpsb þ fipsb ¼ Dpsb þ bmpsb 2 3
j m m X X
X Bipsb ¼ lpsb 4lpsb Pipsb  dj tjpsb 5
þ Gikpsb ð28Þ psb j=oj ¼i
ik "
X X
þ ðlG ð37Þ
(d) Energy balance for each period and hydro unit, lpsb ikpsb  lpsb ÞGikpsb
X psb k
rmp  rm;p1 ¼  lsb ðhmpsb  rm bmpsb Þ þ Imp #
X
sb
þ ðlH
ilpsb  lpsb ÞHilpsb
 smp ð29Þ l

122 IEE Proc.-Gener. Transm. Distrib., Vol. 151, No. 1, January 2004
(b) Marginal cost for each utility in each level, subperiod Finally, contracts for differences are added in both sets to
and period can be obtained from equation (14) as observe their effect (d). In this last case (d), in the elastic
P P bidding situation, linear variation of bidding and demand
 Pipsb  Hilpsb  Gikpsb with price are considered, while in the Cournot situation it is
@Ci l k
¼ lpsb  P ð38Þ assumed that only demand varies with price. In both
@Pi psb ai0 psb
i0 ¼
6 i situations, the computed demand (MW) is different from
the base case demand because of price variation.

4.8 Piecewise linear approximation of 5.1 Case description

quadratic functions treatment The case study represents a hypothetical large-scale electric
The next errors are defined to check the precision of this power system. It is loosely based on the Spanish electrical
approximation: system, modifying the size of the agents and the cost of
some units.
CD
psb relative error in demand, The scope is split into 12 periods (January to December):
qffiffiffiffiffiffiffiffiffi 2 subperiods for each period (working days and weekends)
D0psb  Dpsb and 3 load levels for each subperiod (peak, off-peak-1 and
D
Cpsb ¼ ð39Þ off-peak-2). So there are 72 load levels (See Table 1).
Dpsb
CPipsb relative error in generated power, Table 1: Daily level duration (hours)
qffiffiffiffiffiffiffiffi
Peak Off-peak Off-peak
Pip0 sb  Pipsb 1 2
CPipsb ¼ ð40Þ
Pipsb
Working 6 12 6
Clpsb relative error in price, day
Weekend 5 11 8
psbp
lpsb  lpsb
Clpsb ¼ ð41Þ
lpsb

There are five utilities (U1 to U5) in the market with

The following strategy has been used to reach the optimum: different sizes. The installed generation capacity for each of
1. Start with a little set of segments (three, for example) them is detailed in Table 2.
around values of Dpsb and Pipsb estimated as optimum.
2. Compute optimum. Table 2: Utilities installed generation capacity (MW)

3. Add segments in the values of Dpsb and Pipsb obtained as U1 U2 U3 U4 U5

optimum for those variables with relative error in demand
or power over 0.01% (doing this for every value increases Thermal 16000 3300 9800 3700 0
convergence time). Hydro 700 9700 2300 0 900
4. Repeat from 2 until relative error in price decreases to a Run-off-the-river 100 2000 1000 0 200
previously fixed value (for example, 1%). Total 16800 15000 13100 3700 1100
Pumping 0 5500 900 0 900

5 Case study

The problem to solve is a linear programming one. It has
been implemented in the GAMS language and solved by
using the CPLEX solver. Execution time for the presented
case is B45 s in a 1.7 GHz PC with Pentium IV processor.
Quadratic constraints have been represented with 3 initial
segments, and relative error in price has been decreased
under 1% in 10 iterations.
Two different sets of cases have been studied. Each set is
named from its base case (a). The first set (named elastic
bidding) considers, in its base case, linear variation of bids
and demand with price; the second set (named Cournot)
considers, in its base case, a Cournot situation where only
demand varies with price and utilities make a quantity
bidding.
Each set includes four different cases. The base case (a) is
as described above. The inelastic case (b) as the same
demand (MW) as the one obtained in the base case, but it is
assumed that the demand is inelastic (a0psb ¼ 0) and that
utilities submit linear bids. The centralised case (c) also has
the same demand (MW) as the base case, but it is assumed
that the utilities behave as in a perfect competition market
(a0psb ¼ N). It is well known that, in this case, the solution
is the same as that obtained by a central planner.
The main characteristics of thermal and hydro units by
utility are shown, respectively, in Tables 3 and 4.
Table 5 shows the power demand for zero price. The
demand slope is 165 MW/($/MWh) for every level. Table 6
shows bid slopes for each utility.
Finally, Table 7 shows contracted quantities for differ-
ences for case (d).
5.2 Results
(a) Elastic bidding (Tables 8–10): Lowest prices are
obtained for the centralised case (c). In the base case (a),
prices are higher and market share increases for utility 1 and
decreases for utility 2. For the inelastic case (b), prices
increase while market share decreases for utility 1. In this
case every utility increases its profit in comparison to the
base case.
The effect of contracts in this case is to lower prices, to
increase market share for those utilities that have contracts
and to decrease it for the rest. The profit for utilities 1 and 3
depends on the reference price for contracts, but equilibrium
quantities and prices do not.

IEE Proc.-Gener. Transm. Distrib., Vol. 151, No. 1, January 2004 123
Table 3: 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 7000 (28) 1000 (2) 2700 (9) 0 (0) 0 (0)
Over 25 500 (3) 0 (0) 800 (3) 1000 (3) 0 (0)

Table 4: Hydro groups characteristics by utility Table 5: Power demand for k ¼ 0 (MW)

Utility U1 U2 U3 U4 U5 Working day Weekend

Peak Off-peak Off-peak Peak Off-peak Off-peak
Number of groups 2 13 6 0 4 1 2 1 2
Total capacity (MW) 700 9700 2300 0 900
Total inflows (GWh) 1400 19400 4600 0 3600 43000 37000 28000 36000 31000 26000

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 6: Bid slopes for each utility (MW/($/MWH))

Month Working day Weekend

Peak Off-p. 1 Off-p. 2 Peak Off-p. 1 Off-p. 2

Utility 1 (U1)
Jan-Jun 82.5 82.5 165 82.5 82.5 165
Jul-Dec 99 99 198 99 99 198

Utility2 (U2)
Jan-Mar 99 99 132 99 99 132
Apr-Sep 132 132 247.5 132 132 247.5
Oct-Dec 99 99 132 99 99 132

Utility 3 (U3)
Jan-Apr 49.5 49.5 82.5 49.5 49.5 82.5
May-Dec 66 66 165 66 66 165

Utility 4 (U4)
Jan-Dec 16.5 16.5 16.5 16.5 16.5 16.5

Utility 5 (U5)
Jan-Dec 33 33 33 33 33 33

(b) Cournot (Tables 11–13): Demand is lower in the
Cournot representation of the market because every utility
obtains higher incomes, increasing prices by decreasing
quantities. The behaviour of prices in the centralised (c) and
inelastic (b) cases in comparison to base case (a) is
qualitatively similar to that found in the previous case.
The effect of contracts is also similar but variations are
greater with a Cournot market representation.
In summary, the studied cases show that:
124
 utilities change their power production to reach market
equilibrium, which is the point where their marginal income
is equal to their marginal cost
 they distribute their hydro production along the periods
to equalise utility marginal costs as much as possible
 if demand is inelastic, utilities have more possibilities to
increase their profit by controlling prices
 for the same demand representation, the Cournot
model obtains higher prices than does an elastic bidding
model
IEE Proc.-Gener. Transm. Distrib., Vol. 151, No. 1, January 2004
Table 7: Case (D): Contracted power (MW)

Utility Working day Weekend

Peak Off-p. 1 Off-p. 2 Peak Off-p. 1 Off-p. 2

U1 3700 3200 2400 3100 2700 2200

U3 4600 4000 3000 3900 3300 2700

Table 8: Market share for elastic bidding (%) Table 12: Average prices for Cournot Bids ($/MWH)

Case U1 U2 U3 U4 U5 Case Working day Weekend

Peak Off-p. 1 Off-p. 2 Peak Off-p. 1 Off-p. 2
(a) 31.8 25.0 29.8 11.2 2.1
(b) 30.7 25.0 30.6 11.7 2.0 (a) 72.7 64.6 49.7 63.0 55.2 46.1
(c) 35.3 23.4 29.4 9.6 2.2 (b) 57.6 50.3 30.9 49.1 43.6 29.1
(d) 33.1 22.6 31.6 10.6 2.1 (c) 18.2 18.2 17.0 18.2 18.2 17.0
(d) 61.2 53.3 41.8 52.1 45.4 38.8

Table 9: Average prices for elastic bids ($/MWH)

Table 13: Demand for Cournot Bids (MW)
Case Working day Weekend
Peak Off-p. 1 Off-p. 2 Peak Off-p. 1 Off-p. 2 Months Working day Weekend
Peak Off-p. 1 Off-p. 2 Peak Off-p. 1 Off-p. 2
(a) 47.9 43.6 30.9 43.0 38.2 29.1
(b) 66.7 59.4 36.4 58.2 50.9 33.9 Jan 30772 26578 19840 25823 22167 18119
(c) 20.6 20.6 19.4 20.6 20.0 17.6 Feb 30772 26478 19840 25763 22167 18119
(d) 41.2 38.2 27.9 37.6 33.3 26.1 Mar 30772 26478 19828 25763 22167 18119
Apr 30938 26478 19834 25803 22167 18119
May 30683 26478 19828 25794 22167 18119
Jun 30772 26478 19806 25431 22167 18119
Jul 30791 26478 19794 25763 22167 18119
Table 10: Demand for elastic bids (MW) Aug 30800 26256 19750 25769 22167 18119

Months Working day Weekend Sep 30794 26478 19822 25763 22167 18119

Peak Off-p. 1 Off-p. 2 Peak Off-p. 1 Off-p. 2 Oct 30818 26540 19828 25763 22167 18119
Nov 30772 26474 19706 25763 22167 18119
Jan 34774 29775 22575 28556 24538 21000 Dec 30772 26478 19840 25763 22167 18119
Feb 34669 29821 22575 28594 24538 21000
Mar 34713 29735 22575 28484 24538 21000
Apr 35206 29845 22925 29025 24569 21288
May 35206 29831 22925 29025 24577 21288
 contracts make prices decrease as utilities have less power
Jun 35199 29831 22925 29025 24538 21288
to bid in the market.
Jul 35206 29831 22925 29025 24991 21288
Aug 35205 29998 22925 29025 24991 21288
Sep 35206 29831 22925 29025 24991 21288
Oct 35206 29831 22925 29025 24519 21288
6 Conclusions
Nov 35206 29831 22925 29025 24519 21288 A market equilibrium model, including as particular cases
Dec 35188 29886 22925 29025 24519 21288 perfect and Cournot competition equilibria, has been
introduced, and a high-performance technique has been
used to solve it. The main contributions of this paper are:
 Market equilibrium can be solved using optimisation
Table 11: Market share for Cournot bids (%) techniques. This allows for the computation not only of
quantities and prices at an equilibrium point but also of
Case U1 U2 U3 U4 U5 dual information about active constraints.
(a) 29.9 26.6 27.9 13.0 2.5  The model generalises the concept of Cournot equili-
(b) 30.0 26.9 29.3 12.5 2.3 brium by including a variation of bid prices with quantity.
Cournot equilibrium can be solved as a particular case. It is
(c) 34.1 26.2 27.4 9.8 2.5
also possible to consider inelastic demand.
(d) 31.7 22.7 31.8 11.6 2.3
 The model can be solved even for large size systems.

IEE Proc.-Gener. Transm. Distrib., Vol. 151, No. 1, January 2004 125
7 References If L(x*) is positive definite on M, that is, yTL(x*)y40 for all
ya0AM, then x* is a local minimum of f(x) subject to h(x) ¼ 0.
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2 Barqu!ın, J., Centeno, E., Malillos, E., and Roman, J.: ‘Medium-term @h
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¼ ½1; 1; ; 1; 1 ð48Þ
@x
on Electric power engineering PowerTech, Budapest, September 1999
3 Ferrero, W., Shahidehpour, S.N., and Ramesh, V.C.: ‘Transaction Therefore, M is the subspace spanned by the basis
analysis in deregulated power systems using game theory’, IEEE
Trans. Power Syst., 1997, 12, (3), pp. 1340–1347 82 3 2 3 2 39
> 1 0 0 >
4 Otero-Novas, I., Meseguer, C., Batlle, C., and Alba, J.J.: ‘Simulation >
> >
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<6 70 7 6 1 7 6 07> >
2000, 15, (1), pp. 250–256 . 6.7 6 . 7=
5 Nguyen, D.H.M., and Wong, K.P.: ‘Natural dynamic equilibrium and
6 . 7 6 . 7 6 . 7
fy1 ; y2 ; . . . ; yn g ¼ 6 . 7 ; 6 . 7 ; :::; 6 . 7
>
> 4 5 405 415> >
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> >
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6 Bushnell, J.: ‘Water and power: hydroelectric resources in the era of 1 1 1
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Electricity Restructuring, University of California, Energy Institute, ð49Þ
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competition in bilateral and POOLCO power markets’, IEEE Trans. second derivatives of the constraint are zero)
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8 Rivier, M., Ventosa, M., and Ramos, A.: ‘A generation operation 2 2 3
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@ C1
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P1 0 0
6 1@P a 7
complementary problem’. Presented at Int. Conf. on Complementary i

Problems, (ICCP), Wisconsin, June 1999 6 i6¼1 7

6 @ 2 C2 P 1 7
9 Ventosa, M., Ramos, A., and Rivier, M.: ‘Modeling profit maximisa- 6 0 þ 0 7
tion in deregulated power markets by equilibrium constraints’. Proc. L¼6 6
@P22 ai 7
7 ð50Þ
13th Power System Computing Conf., (PSCC), Trodheim, June 1999, 6 i6¼2
7
Vol. 1. pp. 231–237 6 .. .. .. .. 7
10 Day, C.J., Hobbs, B.F., and Pang, J.S.: ‘Oligopolistic competition in 4 . . . . 5
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Cambridge, 1988) YTLy40 if and only if the matrix N whose components are
12 Klemperer, P., and Meyer, M.: ‘Supply function equilibria in oligopoly
under uncertainty’, Econometrica, 1989, 57, (6), pp. 1243–1277 Nij ¼ yiT Lyj ð51Þ
8 Appendix is positive definite. It is not difficult to show that a necessary
and sufficient condition is that
The Lagrangian of problem (17) is
X @ 2 Ci 1
LðPi ; D; lÞ ¼ Ci ðPi Þ  U ðDÞ 2
þP
0 8i ð52Þ
@Pi aj
i
j6¼i
!
X X
þl Dþ Gki  Pi ð42Þ This condition implies the second order condition (7).
ik i Therefore, the solution of the minimisation program is a
market equilibrium. Note that, as aiZ0, 8i, this condition
l is, of course, the Lagrange multiplier of the constraint.
holds whenever the cost functions are convex.
The first order optimality conditions are:
On the other hand, it is possible to have market equilibria
@L which are not solutions of the minimisation problem.
¼ 0 i ¼ 1; . . . ð43Þ
@Pi However, let us assume that the cost functions Ci are convex
Cl functions. Let us assume also that a040. In this case the
@L
¼0 ð44Þ equivalence between these two problems can be proved.
@D In fact, as the objective function as well the restriction are
@L convex (because each Ci, as well as the penalty terms and
¼0 ð45Þ the demand utility term U are convex), the optimisation
@l
problem has just one global minimum. On the other hand,
By substituting (42), it is immediate to check that the first (14) shows that l is a growing monotone function of Pi.
order conditions are equations (14)–(16).
Therefore, there is a growing C0 function gi such that
With respect to the second order conditions, the
following theorem will be used. Pi ¼ gi ðlÞ ð53Þ
Second order sufficiency conditions: Let us assume that P
there is a point x* satisfying h(x*) ¼ 0, and that there is a l On the other hand, D ¼ D0–a0l. As D ¼ Pi ,
i
such that X
rf ðx Þ þ lT rhðx Þ ¼ 0 ð46Þ D0 ¼ gi ðlÞ þ a0 l ð54Þ
i
M denotes the tangent plane: M ¼ {y: rh(x*)y ¼ 0}.
Consider the matrix The function on the right hand side is C0 growing
 monotone. Its limits as l-7N are 7N. So, there is just
@2f @ 2 h
Lðx Þ ¼ 2 þ lT 2  ð47Þ one solution of this equation, which can be computed by
@x @x x¼x optimisation.

126 IEE Proc.-Gener. Transm. Distrib., Vol. 151, No. 1, January 2004