Game Theoretic Analysis of a Buy-Back System and a Cogenerator-Customer Wheeling System

Abstract

Electricity markets are experiencing widespread changes that are significantly altering the industry. The purpose of this paper is to analyze the economic consequence of various rules of purchased power pricing and wheeling fees of an electric utility by game theory.
A regulator, an electric utility and a cogenerator are included in this model as players of the game. Consider an extensive game model of an electricity market where a cogenerator sells excess electricity to an electric utility or an end user. The regulator behaves so as to maximize social welfare. The electric utility and the cogenerator intend to maximize their own profit. The wheeling fee between the electric utility and the cogenerator are decided to maximize the sum of incremental profits. We have found that a buy-back system (the utility purchases cogenerated power) and a cogenerator-customer wheeling system are equally efficient and are more desirable than a monopoly system. The buy back rate should be equal to (LP bargaining solution) or less than marginal cost of the electric utility (Nash bargaining solution). We also conducted an analysis of two-period electricity market.