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Financial instruments that help provide revenue certainty are fundamental for project finance in liberalized electricity markets. Improved management of locational risk caused by network congestion is becoming increasingly important with a growing share of production from geographically remote renewable resources. Nodal markets have financial transmission rights (FTRs) to enable participants to manage locational risk, but there is no evidence that FTRs have been used to support project finance. Through a stochastic equilibrium model in which market participants invest in production assets and trade risk, we show that long-term FTRs promote surplus-maximizing generation investments and reduce the cost of capital. Investors pair them with energy price hedges and thus protect themselves against both types of risk. Our results suggest that altering the definition and allocation of FTRs to match the needs of project finance, e.g., by enabling new generators to procure a long-term right at the time of interconnection, could help ensure a complete risk market and encourage efficient investments. [ABSTRACT FROM AUTHOR]

China has integrated tradable green certificates and carbon markets with its electricity sector to promote renewable energy and reduce carbon emissions. However, the impact mechanism of decision-making behaviors of involved entities in these integrated markets on the market equilibrium is still unclear, hence limiting the further development of renewable energy industries and carbon reduction progress to some extent. Therefore, conducting in-depth research to inform policy makers about the impacts of entities' decision-making behaviors on market equilibrium within the context of integrated multiple markets is crucial. This study aims to analyze the characteristics of entities' decision-making behaviors and equilibrium states within the collaborative dynamics of carbon, electricity, and green certificate markets. Specifically, an optimal decision-making model for entities given the multi-market coupling was developed by employing mathematical programming methods to analyze market equilibriums across various market combinations and policy parameters. The conclusions underscore equilibrium price shifts and decision-making characteristics among entities across multiple markets. The result shows that the carbon market could increase power prices and decrease green certificate prices. To ensure sustainable energy development, policymakers should consider the decision-making behavior of entities under multi-market coupling, which can promote the low-carbon transformation of the Chinese energy industry. • Equilibrium price formation mechanisms under multi-market coupling are analyzed. • Simulates micro individual behavior, revealing macro energy structure shifts. • Reveals relationships among markets, aiding in differentiated policy formulation. • Carbon market could increase power prices and decrease green certificate prices. • Carbon market reduce more emission shortly than renewable energy deployment. [ABSTRACT FROM AUTHOR]

Equilibrium capacity expansion is an effective tool to help regulators predict the generation evolution of power systems by analyzing the decision-making of generation companies (Gencos). With the development of carbon markets (CMs) and electricity markets (EMs), Gencos' decisions in these two markets (encompassing investment and bidding decisions related to carbon emission allowances and electricity) are deeply intertwined through market clearing results. However, existing studies mainly focus on equilibrium capacity expansion with fixed carbon prices and usually ignore the realistic clearing process of CMs, which cannot simulate Gencos' coupled decision-making and accurately predict generation evolution under the CMs and EMs. This paper proposes a two-level equilibrium capacity expansion model for power systems which considers the coupled decisions of Gencos between CMs and EMs. At the upper level, multiple Gencos' coupled decision models are proposed based on their interaction with market clearing results. At the lower levels, CMs and EMs are respectively cleared to determine the varying carbon and electricity prices. Furthermore, the developed equilibrium capacity expansion model is reformulated as an equilibrium problem with equilibrium constraints (EPEC), which is solved by a diagonalization-based solution procedure. Finally, a provincial power system of southeast China is used to validate the performance of the proposed framework. The results illustrate that under CMs and EMs, non-fossil energy would account for 81.3% of total capacity and 73.88% of total generation in 2050. Compared to the existing model using fixed carbon prices, the consideration of realistic carbon market clearing will promote the installation of renewable energies and improve social welfare. The proposed model can provide beneficial references for regulators to perceive the evolution of power systems in CMs and EMs. • A two-level equilibrium capacity expansion model for power systems is proposed. • A novel coupled decision model for Gencos in CMs and EMs is developed. • The proposed model is solved by a diagonalization based solution procedure. • The results can guide the transition of power systems under the CMs and EMs. [ABSTRACT FROM AUTHOR]

The reliability option (RO) ensures generation capacity adequacy, drawing inspiration from financial product options. However, most recent RO studies overlook the gaming strategies employed by power producers. This paper proposes a bi-level model based on an equilibrium analysis of the power market under RO. The upper-level model aims to maximize the power producers' profit, whereas the lower-level model focuses on market clearing. Profit calculation considers factors like electricity sales income, option fees income, fuel cost, expansion investment cost, refund cost, and penalties. The bi-level model is reformulated into a mathematical problem with equilibrium constraints (MPEC) for each producer using Karush–Kuhn–Tucker conditions of the lower-level model. We then apply a series of linearization methods. The market equilibrium is obtained through the dynamic game framework for all MPECs. We also provide a comprehensive purchase cost calculation and demonstrate its equivalence to user side surplus. We examine cases from various spot market construction maturities in a provincial area of China. Our results indicate that implementing the RO mechanism and aligning parameters with the proposed optimal RO parameter curve, one can reduce the comprehensive purchase cost. • Various strategies of all power producers are considered. • The MPEC under RO mechanism is precisely linearized to MILP. • Dynamic game framework is used to solve market equilibrium to be more practical. • RO mechanism can increase the user side surplus according to the equilibrium. • The optimal RO parameter curve is obtained as the parameter setting suggestion. [ABSTRACT FROM AUTHOR]