General course objectives:
Following the transition of the economy from regulated monopolies to market based control, the former vertically integrated utility companies had aspects of their business separated. The liberalisation of electricity markets and the separation of the utilities to multiple companies responsible for generation, transmission and distribution, often within the same geographical area, increased the number of actors in power systems. As opposed to the central planning of the past, today, all aspects of power systems rely on market forces for the coordination between competing actors with often contradicting objectives and motives. As such, Game Theory, with applications ranging from economics and political science to engineering and information technology, provides a relevant analytical and conceptual framework for the study of market based interactions among rational participants in power systems.
In this context, the aim of this course is to introduce students to the fundamentals of Game Theory and apply its concepts in order to address the challenges in electricity markets and modern power systems guided by market forces.
A student who has met the objectives of the course will be able to:
- Identify the differences between the branches of Game Theory i.e. cooperative vs non-cooperative games
- Define the basic concepts that can be used in various applications of Game Theory i.e. equilibria, optimality conditions
- Give examples on how the introduced concepts can be applied in the various branches of Game Theory and link with optimisation (e.g. complementarity modelling)
- Generalise to a wider class of game-theoretic problems (games and auctions) and show how they can be applied in selected topics in electricity markets and smart grids
- Compare the outcomes of the different games
- Evaluate and reflect on how Game Theory applies to the challenges of current and future power systems
The course moves from understanding the complexity of even a very common game of “rock, paper, scissors” to game theoretic applications in the electricity markets and smart grids. A basic example is presented and the course builds upon it as various game theoretic concepts are presented. The course consists of three parts depending on the examined aspects of game theory.
In the first part, we introduce the various branches of Game Theory which we then proceed to analyse while focusing on auctions and the challenges presented when they are used in real-life applications. For the second part we deal with non-cooperative game theory and its application in electricity markets (market power and design). Finally, for the third part we study repeated games and focus on minority games and their use in modelling the complex interactions between stochastic producers. Throughout all three parts we compare the different games using a common set of tools e.g. equilibrium analysis and apply the introduced methods in selected case studies related to electricity markets such as tacit collusion and market design and participation strategies. Finally, we evaluate the game theoretic methods against non game theoretic approaches.
In a nutshell:
Combination of lectures, exercises and self-teaching methods through case-studies
Time period: Fall Semester 2016
Assessment: assignment based with report and oral presentation
Recommended textbooks for power system economics and markets:
- Fundamentals in Power System Economics, Daniel Kischen, Goran Strbac
- Complementarity Modelling in Energy Markets, Steven A. Gabriel, Antonio Conejo, J. David Fuller, Benjamin F. Hobbs, Carloz Ruiz
Recommended textbooks for game theory:
- A course in Game Theory, Martin J. Osborne, Arial Rubinstein
- Game Theory, Drew Funderberg, Jean Tirole
- An Introduction to Game Theory, Martin J. Osborne
Introduction and course presentation slides
Basic definitions and concepts in Game Theory slides
Mixed Strategy Equilibria slides
Auction Theory and Mechanism Design I slides
Auction Theory and Mechanism Design II slides
Equilibria, Complementarity and Optimality Conditions slides
Mathematical Programming with Equilibrium Constraints slides
Extensive games with perfect information slides
Minority Games and Population Dynamics slides