Competition of Thermal Electricity Generators with Coupled Transmission and Emission Constraints
Publication: Journal of Energy Engineering
Volume 139, Issue 4
Abstract
Thermal generators’ emissions constitute an externality on which a regulator might wish to impose constraints. In addition, transmission capacity for sending energy may be naturally restricted by the grid facilities. Both pollution standards and transmission capacity impose constraints, coupling the strategies of the agents in their joint strategy space. To force competitive electricity generators to respect those constraints when individual monitoring is unavailable we envisage the regulator solving a generalized Nash equilibrium problem to establish an equilibrium in which the joint constraints are satisfied. If the regulator appropriately modifies the generators’ payoffs then they will play a decoupled game in which they can ignore the information on the joint constraints. For the payoff modification to induce the required behavior, a coupled constraints equilibrium needs to exist and be unique. We borrow from the electrical engineering (EE) literature a three-node network model that has these properties and use it in this paper to discuss and explain the behavior of the agents subjected to the coupled constraints. We find that the imposition of transmission and environmental restrictions may increase the output share of an inefficient generator and decrease consumer surplus.
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Acknowledgments
The first author is supported by the Spanish Ministry of Science and Technology through CICYT Grant ENE2009-09541. The second author expresses gratitude to Kyoto University Institute of Economic Research (KIER) for hosting and supporting him in 2009 during a revision of this paper. The third author is supported by VUW FCA FRG-05 (24644). Helpful comments and clarification questions by an anonymous referee are gratefully acknowledged. We are also very thankful to M. Fukushima, J.-S. Pang, and P. Calcott for their remarks on GNE importance, relaxation algorithms, and the relationship between agents’ choice sets interdependency in sequential vis-à-vis simultaneous move games. All remaining errors are ours.
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Information & Authors
Information
Published In
Journal of Energy Engineering
Volume 139 • Issue 4 • December 2013
Pages: 239 - 252
Copyright
© 2013 American Society of Civil Engineers.
History
Received: Sep 6, 2012
Accepted: Jan 14, 2013
Published online: Jan 16, 2013
Discussion open until: Jun 16, 2013
Published in print: Dec 1, 2013
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