Dynamic Game-Theoretic Models of Electric Power Markets and their Vulnerability

The issues of market power, generation adequacy, and vulnerability in network-constrained electric power markets are of increasing concern to market participants, policy makers, and the general public. Although price formation and investment are inherently dynamic processes, they are usually studied using static economic and game theoretic models. This disregarding of lags, expectations, and adjustment processes may yield distorted conclusions about the effects of proposed changes to market structure and designs. To investigate and overcome this distortion, there is a need for (a) realistic models of dynamic interactions among strategically behaved electric power market participants, and (b) the design of efficient computational methods that can handle the high dimensionality of realistic power systems. The proposed research and pedagogy have four objectives: a) formulation of dynamic game theoretic models of pricing and generation for transmission-constrained electric power markets, for a variety of competitive circumstances and market structures b) development of efficient algorithms for solving the models c) demonstration and testing of models and algorithms using realistic data d) development of educational curricula integrating game theory, economics, and electric power systems. The project has several broader impacts, including contributions to education and public policy. We will develop curricular offerings in dynamic optimization and differential games for the modeling of electric power markets. This material will be made available as a professional tutorial and distributed to the educational community via the project website. Our models hold the potential of significantly enhancing the capability of regulatory agencies, market operators, and stakeholders.