Computing Cournot Equilibria in Two Settlement Electricity Markets with Transmission Constraints

We formulate a two-settlement equilibrium in competitive electricity markets as a subgame-perfect Nash equilibrium in which each generation firm solves a Mathematical Program with Equilibrium Constraints (MPEC), given other firms’ forward and spot strategies. We implement two computational approaches, one of which is based on a Penalty Interior Point Algorithm and the other is based on a steepest descent approach. We apply the algorithm to a six node illustrative example