Equilibrium models for multifuel energy markets with uncertainties and market power

Abstract

The dissertation applies the tools of mathematical optimization and game theory to study multi-fuel energy markets with uncertainties and market power. The first two papers are methodological and with particular attention on infrastructure development in multi-fuel energy markets. The third paper contributes to application in restructured electricity markets.

Paper 1 proposes the first stochastic, multi-horizon, equilibrium model for multi-fuel energy markets. The multi-horizon scenario tree approach handles both long-term and short-term uncertainties while maintaining computational tractability. The experiment results indicate that considering uncertainties can have significant effects on investment decisions regardless of the market structure. Moreover, we extend the concept of the value of the stochastic solution (VSS) to multi-horizon stochastic equilibrium problems. Numerical experiments show that the VSS can be negative, particularly in less competitive markets.

Paper 2 extends the model in Paper 1 by further considering uncertain fossil fuel reserves and reservoir levels. To facilitate the modeling, we propose a derivative scenario tree approach that passes aggregated information of short-term operations to the succeeding investments. The feasibility of our proposed modeling approach to substitute the traditional scenario tree modeling approach is indicated by the experiment results in terms of investments, profits, social welfare, and computation time in perfect and imperfect market structures.

Paper 3 is the first-time quantitative analysis on how the market power of electricity suppliers and/or a carbon price together affect the restructured electricity markets, where various generation technologies play a role. To do so, a deterministic equilibrium model with market power parameters (using conjectural variation approach) is constructed. The model is implemented in a stylized market setting based on Chinese electricity market data in 2016. We investigate thousands of cases of market power and a carbon price. One of the findings is a threshold value of the carbon price, below which the generation capacity expansion increases rapidly as the carbon price increases, and beyond which the expansion doesn’t vary as the carbon price further increases.