Leader-Follower Equilibria for Power Markets in Presence of Prosumers

Abstract

Increased penetration of distributed energy resources throughout the power sector has introduced a new entity in electricity markets, namely, prosumers, with the dual nature of concurrent consumption and generation. This paper assesses the market power potential of prosumers (leader) using a Stackelberg model formulated as a mathematical program with equilibrium constraints (MPEC). The MPEC is recast to a mixed integer program where the Wolfe’s duality is used to overcome the bilinear terms in the objective function, and disjunctive constraints are used to replace complementarity conditions. We apply the model to the IEEE 24-Bus Reliability System to illustrate market outcomes. We show that the Stackelberg strategy always yields higher payoff for the prosumers compared to Cournot and perfect competition cases. Moreover, the social surplus resulted from Stackelberg equilibrium, compared to the other strategies, is the highest (lowest) when the prosumer is in short (long) position. Our analysis contributes to understanding the potential outcomes when prosumers are introduced to marketplace in the power sector.