Exploring the Role of Demand Shifting in Oligopolistic Electricity Markets

Previous work has demonstrated that the price elasticity of the demand side reduces electricity producers’ ability to exercise market power. However, price elasticity cannot capture alone consumers’ flexibility, as the latter mainly involves shifting of loads’ operation in time. This paper provides for the first time qualitative and quantitative analysis of the value of demand shifting in mitigating market power by the generation side. An equilibrium programming model of the oligopolistic market setting is developed, taking into account the inter-temporal characteristics of demand shifting. The decision making process of each strategic producer is modelled through a bi-level optimization problem, which is solved after transforming it to a Mathematical Program with Equilibrium Constraints (MPEC). The market equilibria resulting from the interaction of multiple independent producers are determined by employing an iterative diagonalization method. Case studies on a test market with day-ahead horizon and hourly resolution quantitatively demonstrate the benefits of demand shifting in limiting generation market power, by employing relevant indexes from the literature