A Bi-level Optimization Model for Capacity and Energy Markets Considering the Design of the Capacity Demand Curve

With the acceleration of China's new power system construction and the push towards a unified national electricity market, the focus has shifted to developing an appropriate capacity market mechanism. This mechanism should ensure sufficient system capacity and effectively promote the investment and construction of various capacity resources. This paper proposes a bi-level optimization model for the capacity and energy markets, considering the design of the capacity demand curve. First, different shapes of the capacity demand curve are modeled to establish a reasonable capacity clearing price. Then, a bi-level optimization model is constructed that accounts for the potential operational benefits of the energy market. By iteratively interacting the clearing results from the upper and lower levels, the optimal capacity resource clearing combination can be achieved. Finally, case analysis shows that the proposed model can avoid overinvestment in capacity resources, achieve better economic efficiency, and promote the construction of renewable energy.