Visiting Lecturer Program (4)

Speaker: Leila Tahouri M.Sc.
Department of Mechanical and Industrial Engineering, University of Toronto, Toronto, Canada

Local Organizer: Katayoun Salamati

Title: ELFORSPOT: An Equilibrium Model of the Combined Forward Market and Spot Market for Electricity, Using Complementarity Programming
Time: Monday, May 2, 2005
Location: Industrial Engineering Department, Sharif University of Technology, Tehran

Abstract:

In restructured electricity markets, participants have the option of trading financial forward contracts prior to the spot market. To evaluate the interactions between the forward and spot market, we have created ELFORSPOT, a Complementarity Programming model of multiple suppliers and customers that resembles a potential future Ontario-like electricity market for a period of one year. There are two formulations of ELFORSPOT. The first simulates a market under various competition assumptions for strategic suppliers. The second extends the formulation of the first to include strategic customers which, similar to suppliers, anticipate the effect of their bids on the market prices. To illustrate the usefulness of these models, we focus on the behaviour of a new entrant (NE) which has higher variable cost and annual fixed costs than the existing generation. The numeric study shows that the NE's behaviour in the market is a function of the market prices, which, in turn, are a function of the strategic nature of the suppliers and customers. For example, in the presence of the price taker customers and Cournot-like suppliers, the NE is a producer-arbitrager. In this case, the forward market results in the spot prices which are lower than the NE marginal cost; however the NE builds more generation facilities by which it gains strategic advantage to lower the spot prices and increases profit by increasing differential payments