A Generation Operation Planning Model in Deregulated Electricity Markets Based on the Complementarity Problem

Throughout the world, the electricity industry is currently undergoing a significant restructuring process toward deregulation and competition. In the new deregulated power markets, electric firms assume much more risk and become highly responsible for their own decisions, and therefore they need decision-support models that fulfill their new requirements. This paper proposes a new approach for long-term operation-planning models, fully adapted to represent an annual or hyperannual power generation scheduling in a competitive framework. The method explicitly states the Cournot market equilibrium by analytically formulating the equations defining the optimal behavior of any strategic generation company. The technical constraints relevant to the time scope studied are also taken into account. The subsequent system of non-linear equations has the structure of a Complementarity Problem and can be solved directly. The model includes a technologically detailed representation of the generation firms, the treatment of hydro operations and of non-linear cost functions. A detailed case study illustrates how this model works, and how different generation technologies are optimally operated. An application to the Spanish electric market is also briefly presented in order to show that the model is also able to deal with large-scale electric systems.