Cournot Competition under Uncertainty in Power Markets

Abstract

As deregulation of the electric industry has come into effect in many parts of the world, the price of electricity is no longer determined by regulatory agencies. In contrast, price is determined by market demand, supply conditions, load elasticity, and strategic behavior. Firms, nowadays, face much greater risks and have become more responsible for their own economic decisions in deregulated power markets. Therefore, decision-support models can help firms fulfill these new requirements.This research is aimed at developing analytical models for long-term markets to assess the effect of uncertainties on electricity market prices. A multi-period Cournot model was developed for this purpose. Specifically, two significant uncertainty factors, the availability of the generating units and fuel price uncertainty, are considered in this model. An impact analysis of these two factors on firms’ expected profits is also carried out. Finally, a sensitivity analysis is performed to determine the parameters that have the most significant impact on the Nash-equilibrium solutions.