Two-zone electricity equilibrium computation with Mixed Integer Programming

Abstract

Cross-border energy markets are becoming more relevant and line congestions may cause significant modifications in their underlined bidding strategies, increasing the market power. This environment requires the development of new tools to measure biased behaviors, and also to try to mitigate them. The related literature makes use of techniques to simulate the bidding strategies, mostly based in optimization models, with or without equilibrium constraints, or mixed complementary problems, and embedded in ad-hoc iterative procedures. This paper presents a model for a two areas system, assuming a conjectural equilibrium. A Mixed Integer Programming method has been implemented to solve the equilibrium conditions, where a binary variable is used to represent the line's power flow status (congested or not) between both two areas. Instead of an ad-hoc algorithm, the Branch and Bound algorithm is used for the resolution, which can assure convergence in specific situations where previous algorithms may diverge.