Modeling of Bidding Behavior in Competitive Electricity Markets
In an analysis of electricity markets in England and Wales, Analysis Group developed detailed models of bidder behavior under very different market rules. For the period when prices were set uniformly for all sellers, we developed a spreadsheet-based Visual Basic model of the England and Wales Pool to help an asset owner formulate bidding strategy in a market with highly concentrated ownership. The model relies on an analytically tractable yet flexible representation of strategic bidding based on linear supply function equilibrium.
Analysis Group also developed a spreadsheet-based Visual Basic model for the same market that was adapted to significant changes in market rules, the "pay-as-bid" NETA market. The model has a number of distinct modules, including one that characterizes the distribution of demand based on user-supplied data, another that allows users to vary assumptions about the stock of generation and its cost characteristics, and a third that estimates equilibrium prices for each bidder based on inputs from the other modules.