Groupe d’études et de recherche en analyse des décisions

G-97-54

The Energy System of Québec: Cooperative, Regulated and Stackelberg Equilibria

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We present a general methodology to study the electricity market of a country or region, under various pricing mechanisms. The approach is based on modifications of a large scale techno-economic model, and is applied to a realistic model for the Province of Québec. Mathematical programming and a new decomposition procedure are used to simulate different electricity pricing schemes and their effects on the producer's and consumers' decisions. Three types of pricing are analyzed, each one corresponding to a different equilibrium: marginal cost pricing, leading to a cooperative equilibrium, an affine function of the marginal cost, leading to a regulated equilibrium, and monopolistic pricing, chosen by the producer to minimize its costs while knowing the optimal consumers' reaction to the proposed price of electricity (Stackelberg-type equilibrium). The three equilibria are described and justified, and a large scale application to the province of Québec is presented and discussed in some detail.

, 32 pages