Study on economic withholding in electricity market of Zhejiang Province, China H. Zhou a , B. Chen b, * , Z.X. Han a , F.Q. Zhang a a Electrical Engineering College, Zhejiang University, Hangzhou 310027, China b State Key Joint Laboratory of Environment Simulation and Pollution Control, School of Environment, Beijing Normal University, Beijing 100875, China article info Article history: Received 28 December 2007 Received in revised form 20 April 2008 Accepted 3 May 2008 Available online 3 September 2008 PACS: 84.60.Bk Keywords: Electricity market Economic withholding Price spike abstract Power suppliers with market power intend to bid high-price to obtain excessive profit when intensions in the balance of electricity supply and demand emerge. New index is thus necessary to be defined to assess the economic withholding behavior associated with both bidding prices and corresponding bidding capacity. Stages of low price section, economic withholding section and reasonable adventure section were classified in this paper. Based on bidding prices and capacity, absolute index and relative index were proposed to mea- sure the economic withholding degree, with the former used for estimation of the total power system while the latter for comparisons amongst different units. A case study on Zhejiang electricity market indicated that these two proposed indices can accurately assess the economic withholding behavior in the electricity market. Finally, upper limit was sug- gested to be set for the relative index to suppress the behavior of excessive bidding prices in short of capacity. Ó 2008 Elsevier B.V. All rights reserved. 1. Introduction As power market is based on deregulation mechanism offering power suppliers opportunities to bid high-price by regu- lating strategy, traditional rules are needed to be modified during the initial operation period. Electricity shortage appears due to inherent capacity shortage and exterior shortage (e.g. suppliers carry out repairs on some or even all units intentionally when in short of power), thus raising the clearing prices. Joskow and Kahn examined generation vs. rated capacity of major thermal units among large sample of high priced hours [1]. It was also concluded that inherent capacity scarcity only accounted for 16% of high-price hours [2]. Therefore, most capacity scarcity at high-price hours can be attributed to the behaviors of power suppliers, i.e., economic withholding as can be seen in some researches on the relationships between withholding capacity and market power [3,4]. Chinese power market is a sellers’ market and Zhejiang Province as the most developed area of China with high concen- trations of industries and enterprises has been long in bad shortage of power supply. Since power suppliers prefer to bid high-price and withhold electricity when capacity shortage occurs, which affects the fundamental security and impedes the healthy operation of the power market and further the economic development, it is necessary to monitor and analyze the withholding behavior of power suppliers. There are physical and economic withholdings in the power market. Recent researches focused on the qualitative analysis of clearing price spikes resulted from these two withholdings [5–8], and few study provided foundation for energy policy on how to restrain withholding [9]. This paper intends to probe into the economic withholding of Zhejiang power market and presents empirical evidence for the constitution of Chinese power market policy. 1007-5704/$ - see front matter Ó 2008 Elsevier B.V. All rights reserved. doi:10.1016/j.cnsns.2008.05.016 * Corresponding author. Tel./fax: +86 10 59893227. E-mail address: chenb@pku.edu.cn (B. Chen). Commun Nonlinear Sci Numer Simulat 14 (2009) 2495–2501 Contents lists available at ScienceDirect Commun Nonlinear Sci Numer Simulat journal homepage: www.elsevier.com/locate/cnsns