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arXiv · 1903.11383

Determining Fundamental Supply and Demand Curves in a Wholesale Electricity Market

Sergei Kulakov·Florian Ziel
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Abstract

In this paper we develop a novel method of wholesale electricity market modeling. Our optimization-based model decomposes wholesale supply and demand curves into buy and sell orders of individual market participants. In doing so, the model detects and removes arbitrage orders. As a result, we construct an innovative fundamental model of a wholesale electricity market. First, our fundamental demand curve has a unique composition. The demand curve lies in between the wholesale demand curve and a perfectly inelastic demand curve. Second, our fundamental supply and demand curves contain only actual (i.e. non-arbitrage) transactions with physical assets on buy and sell sides. Third, these transactions are designated to one of the three groups of wholesale electricity market participants: retailers, suppliers, or utility companies. To evaluate the performance of our model, we use the German wholesale market data. Our fundamental model yields a more precise approximation of the actual load values than a model with perfectly inelastic demand. Moreover, we conduct a study of wholesale demand elasticities. The obtained conclusions regarding wholesale demand elasticity are consistent with the existing academic literature.

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Sergei Kulakov, Florian Ziel. 2019-11-15. Determining Fundamental Supply and Demand Curves in a Wholesale Electricity Market. https://arxiv.org/abs/1903.11383

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