Modeling and analysis of market power regulation in electricity market based on principal-agent mechanism

Abstract

Since the construction of the domestic electricity spot market in 2017, the problem of market power abuse caused by high market concentration and poor demand-side flexibility has gradually become prominent, and the electricity market operators have gradually established a market power regulation system, with bidding price replacement and clearing price replacement as two common market power regulation measures. This paper constructs a market power regulation model based on the principal-agent mechanism and analyzes the market equilibrium and the decision interval of market participants of the above two market power regulation measures. The results show that both market power regulation measures can make the market equilibrium price be the regulated price, but under bidding price replacement regulation the market clearing quantity distorts the market resource allocation and the decision interval of market participants is narrower. Therefore, the clearing price replacement is recommended as market power regulation measures. Finally, this paper solves the optimal strategies of market participants and market operators, and concludes that the optimal strategies of market participants under both market power regulation measures are to make the market regulation ineffective, which verifies the effectiveness of market power regulation measures.