Competition of Thermal Electricity Generators with Coupled Transmission and Emission Constraints.

Thermal generators' emissions constitute an externality on which a regulator might wish to impose constraints. In addition, transmission capacity for sending energy may be naturally restricted by the grid facilities. Both pollution standards and transmission capacity impose constraints, coupling the strategies of the agents in their joint strategy space. To force competitive electricity generators to respect those constraints when individual monitoring is unavailable we envisage the regulator solving a generalized Nash equilibrium problem to establish an equilibrium in which the joint constraints are satisfied. If the regulator appropriately modifies the generators' payoffs then they will play a decoupled game in which they can ignore the information on the joint constraints. For the payoff modification to induce the required behavior, a coupled constraints equilibrium needs to exist and be unique. We borrow from the electrical engineering (EE) literature a three-node network model that has these properties and use it in this paper to discuss and explain the behavior of the agents subjected to the coupled constraints. We find that the imposition of transmission and environmental restrictions may increase the output share of an inefficient generator and decrease consumer surplus. [ABSTRACT FROM AUTHOR]