The source of wind power producers’ market power

In most electricity markets, the bidding rule requires wind power producers (WPPs) to bid in the day-ahead market. Consequently, WPPs compete with marginal generators rather than zero-cost generators in some hours. During these hours, WPPs have the ability to inflate wholesale market prices by withholding their generations. In this paper, we build a three-generator-two-hour model to analyze WPPs’ ability and incentive to manipulate price in a sequentially structured electricity market. By exploring WPPs’ cost structures and the dynamics by which prices respond to WPP’s generation of current and adjacent hours, the analyses demonstrate that WPPs can have significant ability to manipulate price (ATMP). Furthermore, we propose an indicator to quantify the incentive to manipulate market prices (ITMP), which can be positive or negative, depending on whether additional revenues can be obtained by exercising market power. Case studies based on real-world data demonstrate that WPPs from ERCOT had the incentive to manipulate price in most hours in 2020 by strategic offering, i.e., the increase or reduction of the commitment in certain hours according to the available ramp rate of the system. It is urgent to develop relevant market regulation approaches. Two specific cases illustrate that WPPs can acquire extra revenue by adopting a particular strategy, i.e., the increase or reduction of the commitment in certain hours according to the available ramp rate of the system. The empirical simulation based on data from ERCOT in 2020, demonstrates that WPPs had the incentive to manipulate prices in most hours in 2020.