Regional Bid Adjustment Incentives of a Dominant Buyer under Introduction of Demand Bidding and Locational Pricing

Korea is introducing demand-side bidding and locational pricing in its wholesale power market. Currently demand is set by the operator's forecast, so the buyer cannot influence the price; once demand bidding is allowed, the submitted quantity becomes the buyer's choice, and KEPCO, the de facto single buyer, gains the ability to affect it. Having this ability does not imply exercising it; that depends on a separate incentive. Distinguishing ability from incentive, we analyze when a dominant buyer would strategically underbid demand. Analysis shows underbidding yields a persistent incentive, and a simulation on Korean data quantifies it. In every representative scenario a strategic bid beats truthful bidding, and its profitable direction reverses with demand level owing to supply-curve asymmetry. This shows not that the buyer so behaves but that the incentive can arise, so surveillance must look beyond total-quantity deviations to the direction and regional pattern of bid deviations.