The Role of Demand Flexibility in Addressing Inc-Dec Gaming in Electricity Markets

Zonal day-ahead (DA) electricity markets followed by redispatch (RD) markets for congestion management are vulnerable to the strategic bidding behavior known as Inc-Dec gaming. Although previous literature has demonstrated the effects of Inc-Dec gaming, it has neglected the participation of flexible demand in RD markets. This paper addresses this gap by developing a novel multi-period bi-level optimization model of a strategic producer participating in DA and RD markets, accounting for the inherent time-coupling operating characteristics of demand flexibility (DF) in the RD market. This model includes an upper level problem determining the optimal bidding decisions of the strategic producer in the DA and RD markets, and two lower level problems representing the clearing process of the two markets. The role of DF in addressing Inc-Dec gaming is demonstrated through a small-scale case study involving a 2-node system and a 2-period market horizon (showing peak/off-peak dynamics), as well as a large-scale case study involving a modified IEEE RTS 24-node system and a daily (24-h) market horizon.