Viewing the deregulated electricity market as a bilevel programming problem

Abstract

In this paper we present a bilevel programming formulation of a deregulated electricity market. By looking at a deregulated electricity market in this format we achieve two things,

the relation between a deregulated electricity market and other economic models that can be formulated as bilevel programming problems becomes clear, (i.e. Stackelberg leader-follower games and principal-agency models) an explanation of the reason why the so called "folk theorems" in electricity networks can be proven to be false The interpretation of a deregulated electricity market as a bilevel program also indicates the magnitude of the error that can be made if the electricity market model studied does not take the physical constraints into account or oversimplifies the electricity network to a radial network.