Research on Generation Side Strategy and User Side Cost Based on Equilibrium Analysis under Reliability Option Mechanism

Reliability option (RO) is a generation capacity adequacy mechanism based on option concept in financial products. Recent studies on RO lack the consideration of the game between power producers. In this paper, the market equilibrium under RO mechanism is studied and a bilevel model is proposed. The upper-level models are maximizing the profits of power producers and the lower-level model is market clearing. Electricity sales income, option fee income and expenditure including fuel cost, expansion investment cost, refund cost and penalty are considered to evaluate each power producer's profit. The bilevel model is reformulated into the mathematical problem with equilibrium constraints (MPEC) and a series of linearization methods are used. The market equilibrium is obtained by diagonalization iteration for all MPECs. Then, some cases are set to analyze the capacity investment and the comprehensive purchasing cost of users in the equilibrium state. Finally, suggestions on the construction of RO mechanism are given.