Game Theory Application in Hydropower’s Firm Energy Monthly Allocation Process

Abstract

In the centralized Brazilian Power System there is a specific mechanism designed for hydroelectric power generators - Energy Reallocation Mechanism – that aims to mitigate the system hydrological risk, as well as the financial asymmetric impacts over the hydro generators derived from the centralized dispatch, by sharing such risk with all participants avoiding involuntary financial losses to the hydro generators. The regulatory framework establishes that hydro generators must set in advance their firm energy monthly allocation along the year, in order that the monthly allocation decisions define the ERM monthly allocation. Firm energy or physical guarantee is a type of energy credit that represents the amount of energy a generator unit can trade by bilateral contracts. In the scheme, the individual and the system monthly allocation are accounted, therefore, a strategy applied by a representative agent in the system, in terms of firm energy, can affect the result obtained by the other participants. Therefore, this allocation decision can be studied in the light of the game theory and based on that our study presents a simplified ERM simulation model aiming to analyze the impacts caused from one agent over another, under specifics strategies of the monthly allocation decision and by applying the Nash Equilibrium method.