Analyzing Wholesale Electricity Market Using Supply Function Equilibrium Model

摘要

Market power and carbon externality are well-known market failures of wholesale electricity markets. This work uses one ofgame-theoretic models, asymmetric Supply Function Equilibrium (SFE), and shows that policy options to rectify carbonexternality (e.g., carbon tax) can have suppressed effect when market power exists. SFE model assumes that each of largegeneration firms strategically bids a supply function to the market while anticipating the strategic bidding of the other largefirms. Then, the model finds an equilibrium of these bidding functions by solving the profit maximization problems of allstrategic firms. For case study, we use Japan’s wholesale electricity market based on historical data in 2017. In Japan, generationfirms have very different generation portfolios, i.e., the market structure is asymmetric. Therefore, it is necessary to useasymmetric model, which is more difficult to solve than symmetric SFE model where all strategic generation firms are assumedto have identical generation portfolios. We explain our computational method to solve asymmetric SFE.