Game Theory Application in Hydropower's Firm Energy Monthly Allocation Process

In the Brazilian Power System, due to its hydrothermal characteristics and centralized dispatch operation, there is a specific mechanism designed for hydroelectric power generators, named Energy Reallocation Mechanism. It aims to mitigate individual’s hydro generation risk by sharing the overall hydro generation with all participants, proportionally with its individual’s share in the Mechanism. Individual’s participation is represented by the Firm Energy or Physical Guarantee, which represents its share in the overall System and works as a type of energy credit that sets the amount of energy a generator unit can trade by contracts. In the regulatory framework context, the Firm Energy must be allocated along the twelve months of the year, when the hydro generator must define its strategy in advance, every December. The point is that the individual’s monthly allocation influences the overall allocation and, as consequence, how the quotas are shared in the Mechanism accounting process. Hence, a strategy applied by a representative agent, in terms of Firm Energy, can affect the result obtained by the other participants. Therefore, the monthly allocation decision can be understood as player’s competition and can be studied in the light of the Game Theory. Based on that, our study presents a simplified ERM simulation model aiming to analyze the impacts caused from one agent over another, under specifics strategies of the monthly allocation decision and by applying the Nash Equilibrium method. The results obtained evidence that the application of Game Theory tools are efficient for this type of decision studied.