Research on Variable Cost Compensation Problem in the Electricity Market Based on the Bilevel Optimization Model

This paper establishes a bilevel optimization model with the optimal bidding on the power generation side as the upper layer and market clearing as the lower layer. Based on a 5node system, this paper discusses the impact of two types of government-driven modules, price government-authorized price difference contracts and variable cost compensation, on unit revenue and market equilibrium results in different scenarios such as different game types, different variable cost subsidy benchmarks, and different price difference contracts. The results of the example show that variable cost compensation may cause high-cost units to declare a price lower than their own cost to obtain a higher bid power and earn excess profits. If the contract price of the price difference contract is set lower than the node power price of the unit's spot, it may cause the unit to miss out on obtaining higher profits in the spot market. If the contract price of the price difference contract is set unreasonably, the larger the proportion of contract power is, the more likely it is that the unit will suffer losses.