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A model of electricity markets with measures to mitigate inc-dec gaming
The increased participation of renewable energy sources, while key to the green shift towards a future with lower carbon emissions, is adding more uncertainty to the electricity markets, due to source intermittency. The distributed aspect of new sources builds up the complexity and may stress the current balancing system. A market-based redispatch is a design intended to efficiently reward providers of flexibility in electricity markets. However, this design may present shortcomings, such as opening up for strategies where market power can be abused to obtain disproportionately high profits. One such strategy happens when power suppliers increase their output in the day-ahead market and decrease it in the real-time market, and this is known as inc-dec gaming. In this paper, we analyse to what degree producers can benefit from engaging in inc-dec gaming, and calculate the impact of measures that aim to prevent or mitigate the harmful effects of inc-dec gaming, and whether implementing these measures entails adverse side effects. An equilibrium problem with equilibrium constraints (EPEC) framework was developed to analyse these issues in a reduced market model with a day-ahead market and a real-time redispatch market. Results indicate that suppliers can abuse market power in order to obtain significant profits through inc-dec gaming. We find that there are effective measures to prevent and mitigate the adverse effects attributable to inc-dec gaming. However, the implementation of these measures brings a trade-off between the suppliers' profits, the system operator's costs, and the consumers' costs, and will not always increase general welfare.