Calculation of a power price equilibrium

Abstract

In this paper we propose a tractable quadratic programming formulation for calculating the equilibrium term structure of electricity prices. We rely on a theoretical model described in [21], but extend it so that it reflects actually traded electricity contracts, transaction costs and liquidity considerations. Our numerical simulations examine the properties of the term structure and its dependence on various parameters of the model. The proposed quadratic programming formulation is applied to calculate the equilibrium term structure of electricity prices in the UK power grid consisting of a few hundred power plants. The impact of ramp up and ramp down constraints are also studied.