Physical and Financial Virtual Power Plants

Abstract

Regulators in Belgium and the Netherlands use different mechanisms to mitigate generation market power. In Belgium, antitrust authorities oblige the incumbent to sell financial Virtual Power Plants, while in the Netherlands regulators have been discussing the use of physical Virtual Power Plants.

This paper uses a numerical game theoretic model to stimulate the behaviour of the generation firms and to compare the effects of both systems on the market power of the generators. It shows that financial Virtual Power Plants are better for society.

Keywords: Futures Markets, Options Markets, Cournot, Market Power, Electricity, Arbitrage

JEL Classification: C72, D43, G13, L13, L94