Long-term Nash equilibria in electricity markets

David Pozo, Javier Contreras, Ángel Caballero, Antonio De Andrés

Research output: Contribution to journalArticlepeer-review

13 Citations (Scopus)


In competitive electricity markets, companies simultaneously offer their productions to obtain the maximum profits on a daily basis. In the long run, the strategies utilized by the electric companies lead to various long-term equilibria that can be analyzed with the appropriate tools. We present a methodology to find plausible long-term Nash equilibria in pool-based electricity markets. The methodology is based on an iterative market Nash equilibrium model in which the companies can decide upon their offer strategies. An exponential smoothing of the bids submitted by the companies is applied to facilitate the convergence of the iterative procedure. In each iteration of the model the companies face residual demand curves that are accurately modeled by Hermite interpolating polynomials. We introduce the concept of meta-game equilibrium strategies to allow companies to have a range of offer strategies where several pure and mixed meta-game Nash equilibria are possible. With our model it is also possible to model uncertainty or to generate price scenarios for financial models that assess the value of a generating unit by real options analysis. The application of the proposed methodology is illustrated with several realistic case studies.

Original languageEnglish
Pages (from-to)329-339
Number of pages11
JournalElectric Power Systems Research
Issue number2
Publication statusPublished - Feb 2011
Externally publishedYes


  • Exponential smoothing
  • Hermite interpolation
  • Market simulation
  • Meta-game
  • Mixed Nash equilibrium
  • Pure Nash equilibrium


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