Preventing tacit collusion in deregulated electricity markets through trilevel optimization

Official URL: https://dx.doi.org/10.1007/s12667-024-00674-8

Deregulation in electricity markets aims to promote the market competition in order to minimize the cost of electricity to the public. Among the many threats that may lead to inflated electricity prices, tacit collusion is challenging to deal with. Tacit collusion, which may not be detected by the system operators easily, is usually considered as an outcome of the strategic behaviour of the electricity generators in a repeated game under the existence of certain market conditions and settings of the transmission network. We present a trilevel optimization problem which intertwines the decisions of agents in the market; a solution to this problem aims to prevent potential collusion by modifying the transmission network. Due to intractibility of the resulting trilevel problem formulation, an iterative algorithm solving a restricted version of the original trilevel problem in each iteration is proposed. Computational results show that it is possible to attain a collusive-free environment in an oligopolistic market with an efficient algorithm. We also investigate the effect of an intuitive compound objective function and problem attributes that affect the computational difficulty and effectiveness of the proposed algorithm.