Direct Application of Nash Equilibrium Method to Analyze Strategic Gaming in Electricity Markets

One of the most important goals of restructuring and privatization in electricity industry has been competition of firms to improve productivity. In this new competitive environment, electricity sellers try to select the best strategy for maximizing their profits through participating in energy market. Hence, competitive electricity market can be considered as the arena of a strategic game in which, generation companies – as players of this game- compete to gain maximum benefit. This paper first describes the concepts of game theory and electricity markets precisely and then develops an algorithm for direct application of Nash equilibrium method to analyze strategic behavior of electricity sellers in a Bertrand Game. For better understanding of GENCO's strategic gaming and for studying the consequences of their decisions, several case studies are carried out over a well-known test system and the results are discussed.