9th International Conference on Smart Energy Systems
12-13 September 2023
Copenhagen, Denmark

Game-Theoretic Analysis of Suppliers'
Market Power in
Local Multi-Energy Markets
Júlia Barbosa, Florian Döllinger, Florian Steinke

Local Energy Markets (LEMs) are a promising approach to integrating renewable energy resources:

  • Electricity LEMs help alleviating grid bottlenecks [1]
  • LEMs reduce entry barriers for small players [2]
  • LEMs mitigate social resistance to new renewable energy projects closeby [3]

Thermo-electric LEM.

Thermal-Electric LEM Design studies often solve the market clearing as a social-welfare maximization ([4-5])

The perfect competition assumption is questionable:

Which leads to the question:

How does imperfect competition affect thermo-electric LEMs and how it may be mitigated?
Energy consumption model

Consumers are assumed price-takers with a quadratic utility function.

Supplier Agent Model

Generation: Supply of a commodity from some energy form for which no LEM exists.

Storage: Storage energy and retrieving at a later time.

Conversion The transformation between two energy commodities for which a LEM exists.

Perfect Competition

All agents are price-takers and the market outcome maximizes the social welfare.

Oligopolistic Competition

Suppliers are profit maximizer strategic players

Perfect vs Imperfect Competition

Repeatedly increased the number of agents of a type, without increasing the total capacity of the type.

  • Reduction of consumer surplus in oligopolistic competition.
  • Market power reduces as the number of agents increases.
  • Producer surplus significantly increases with oligopolistic competition.
Market Power Mitigation Strategies Seller of Last Resort (SLR)

Adding a regulated agent that can place an unlimited supply bid at a fixed regulated price.


Diversifying the local energy mix by adding new agent types.

Mitigation Strategies
  • Both strategies increase consumer surplus, however, SLR is significantly more efficient.
  • Diversification increases market efficiency and producer surplus.
  • SLR reduces producer surplus and market efficiency.
  • Thermo-electric LEMs are highly susceptible to market manipulation, which should be considered in the design of such markets.
  • A well-chosen mix of technologies in an LEM can contribute to avoiding abuse of market power.
  • What is the energy mix that best mitigates market power?
Thank you!