Interaction of market power and financial transmission rights in power networks

The effect of the incidence of financial transmission rights (FTRs) allocation on market power is analyzed. In previous studies, this interaction has been modelled with the classical Cournot strategies, where the main assumption is that rival participants do not react to the other participants' strategies. In contrast, we introduce conjectured functions for supply and transmission into the model; in this way, every market participant considers both the FTRs' ownership and the reaction of the others in order to compute the best strategy to maximize profit. Under such a consideration, the competition among participants is modelled with more realism, allowing different degrees of competition. The resulting equilibrium (mathematical programming) problem is modelled as a linear complementarity problem (LCP). The analysis is illustrated by two and six-node networks with a DC approximation.