Decomposition Model of Contract for Difference Considering Market Power Mitigation

The Contract for Difference (CfD) is recognized as an efficient tool for hedging risks in electricity markets. The decomposition of a CfD aims to schedule the concerned contract energy over the contract period for future delivery and settlement, and could directly affects the amount and distribution of the excess capacity of a generator as well as its market power level. In this paper, a decomposition model of CfDs is proposed from the prospective of mitigating the potential market power in an electricity market. First, the residual demand is employed to analyze the impact of CfDs decomposition on market power. The well-established Cournot competition model and perfect competition model are next introduced for market power assessment. On this basis, a decomposition strategy with the objective of minimizing the market price markups is formulated as a bi-level optimization problem. Finally, a 6-unit test system is employed to demonstrate the proposed model, together with detailed analysis of numerical results.