Energy and reserve strategic offers in regional electricity markets: A complementarity approach

Trade between electric power systems is driven by price differences in the corresponding electricity markets. When cross-border trading involves two or more markets, a regional electricity market could be put in place with different types of agreements and regulations. These cross-border exchanges could imply higher economic welfare for each zone (e.g. country) and a re-distribution of the consumers' surpluses, producers' profits and congestion rents within each zone, hindering regional integration. However, a zonal operator (i.e. national operator or system operator -that we introduce in this work) could capture social economic-welfare derived from cross-border trading through managing energy-and-reserve strategic offers to be submitted to the regional electricity market. With this in mind, a zonal strategic operator, using the proposed model in this paper, could modify zonal generators' offers in the process when they are informed to the regional market. This model is implemented through a bilevel programming problem, where, the upper-level optimization problem seeks the zonal social-welfare maximization of a single zone by means of managing producer's offers, subject to the regional social-welfare maximization, that is represented in the lower-level problem. Energy and reserve market prices and dispatches are obtained through a centralized coordination scheme for regional market-clearing in coherence with welfare optimization. Using KKT conditions, this bilevel model is reduced to a mixed-integer linear programming problem which may be solved using a standard branch-and-cut algorithm. Results from an illustrative example and a case study are hereby reported and analyzed.