Game-Theoretic Analysis of the Nodal Pricing Mechanism for Electricity Markets

Nodal pricing is a methodology for pricing electricity and managing transmission congestion that is widely used in deregulated electricity markets. We focus on the economic dispatch problem and consider the strategic behavior of both generators and consumers. For the case of no congestion, we prove the existence of an efficient Nash equilibrium; for the case of congestion, we give examples and counterexamples to demonstrate the complexity of the outcomes. As an alternative, we propose the Power Network Second Price (PNSP) mechanism that always induces an efficient Nash equilibrium.