The liberalization of the electricity sector and the introduction of electricity markets have greatly complicated the organization of the electricity sector, especially for generation companies. Under a centralized framework a central planner took decisions maximizing social welfare, whereas in electricity markets the responsibility of taking many decisions, such as generation expansion for example, lies with the generation companies. From a game-theoretic point of view many decision-making problems in a liberalized power sector can be regarded and analyzed as a game among strategic competitors in search of equilibrium solutions.
Timing of decisions, or better yet, the sequence in which decisions are taken, can convert simple equilibrium games into complicated hierarchical equilibrium problems whose outcomes can diverge significantly depending on the type of game. This talk discusses two applications of such hierarchical games in electricity markets: generation expansion planning; and, generation flexibility in ramp rates. The results indicate that the market structure, i.e., the set-up of the game, can drastically influence outcomes.