The Impact of Liberalizing Fuel Prices on Power Plant's Offered Electricity Prices using an Agent Based Model

In a competitive market, the daily or hourly electricity prices are set by the intersection between power plants’ offers in an auction and consumers demand. In the Iranian semi-competitive electricity market, power plants offer their production and price schedules for the next day and the Independent System Operator (ISO) chooses the winners based on total costs of different suppliers. The producers receive the payment based on their bids and the consumers pay the set prices, which are often subsidized. The power plants also receive the fuel at subsidized prices to keep the production cost and the bidding prices low. The cheap fuel provides no incentive to the power plants to conserve fuel, which causes concerns about the efficiency and the excess pollution created by thermal plants. In this paper, we develop an agent-based model to analyze the impacts of liberalizing fuel prices on power plants production and offer prices. The model includes independent agents who learn from their own and others’ actions and adapt accordingly. We use the AMES programme to simulate the model and estimate values of variable. The results show that if the fuel prices rise by a factor of 10, the electricity prices offered by the power plants will increase by a lower factor.