Network Topology and Locational Market Power

This paper studies the effect of network topology and production constraints on the locational market power of generators. A market power spectrum is considered where one end has infinitely large production capacity but the usual network constraints while the other end has infinitely large network capacity but the usual production constraints. First, we analyze the locational market power function mathematically. Then, we use a real world example of the Portland, Oregon electrical market and determine its position on the market power spectrum. We find the Portland market to be primarily production constrained rather than network constrained. We also identify the local and global threshold generation capacities for each generator beyond which it cannot influence the individual and total locational market power, respectively. This study facilitates the understanding of the economic and physical determinants of locational market power. It can help regulators make informed decisions when it comes to the choice of enhancing the physical infrastructure, or adding more generation capacity to the market.