Supply Function Equilibrium-based Generation Capacity Expansion Planning for Capacity Market

This paper presents a generation capacity expansion planning method for the capacity markets with generation companies’ market power. The strategies of the system operator and generation companies in the capacity market are formulated as a bi-level optimization model. The model is solved by analyzing the competition of generation companies as a non-cooperative game and employing Supply Function Equilibrium to obtain the capacity prices. The case studies verified the effectiveness of the proposed method in reducing the capacity payment and mitigating the abuse of market power possessed by generation companies.