Economic behaviors of generation companies at higher penetration of renewables under different market concentrations

Increased penetration of renewables has posed a significant influence on the wholesale electricity market. For markets with a limited number of large generation companies, such as China, the manner in which bidding strategies for these companies could impact system operation and pricing has not been investigated. This paper proposes a market gaming model to explore such impact. The model is based on a bi-level optimization problem to simulate the interaction between bidding strategies for generation companies and market clearing processes for system operators. A dynamic-gradient, active-set algorithm is developed to obtain an analytical solution for the proposed model. The model is applied to several regional power systems using real-world data. Results indicate that generation companies, under higher market concentration (less generation companies), have the incentive to withhold their available renewable generation in the bidding process to maximize revenue: renewables can be effectively curtailed with no physical constraint binding, at a high degree of market concentration under elevated renewable penetrations. With one generation company owning renewables, saturation occurs at 19% with 2 generation companies and curtailment starts at 50% with 12. When all have renewables, no saturation occurs even at 80% penetration. The issue would be mitigated by increasing the number of generation companies (lowering market concentration) and distributing the renewable capacities more evenly among these generation companies. The results could provide important input for the ongoing, trillion-dollar scale, power market reform in China.