An Integrated Electricity Market Model

Development of an integrated electricity market model for Western Europe

The objective of this research project commissioned by the EC’s DG JRC-IPTS was to develop a comparative static model of the electricity markets of seven EU member states, namely Portugal, Spain, France, Germany, Belgium, the Netherlands, and Luxembourg, explicitly considering the cross-border interconnections between those countries.

The model can be used to conduct oligopolistic welfare analyses depending on exogenously assumed scenario settings that explicitly define:

  • installed power generation capacity
  • availability/capacity factors
  • country-dependent fuel prices
  • share of bilateral/spot electricity trading
  • international transmission capacities and tariffs
  • mergers and acquisitions (also demergers)
  • renewable electricity support schemes (namely feed-in tariffs and green certificate markets)
  • renewable electricity targets
  • emission limits

The consortium built a model based on the use of the game theory-based Cournot approach with inclusion of Conjectural Variations (CV), since:

  • market agents adapt outputs in response to the actions of other agents
  • in terms of quantities and prices, the methodology is able to produce more plausible and realistic results than other modelling alternatives
  • the approach allows a wide range of market structures (ranging from full competitive markets to oligopolies and cartels) to be presented

The model is formulated as a Mixed Complementarity Problem (MCP). This provides a general mathematical framework particularly well-suited to model energy markets: the equations governing the equilibrium in those markets are defined by the Karush-Kuhn-Tucker (KKT, defining the conditions for profit maximisation) and market-clearing (supply equal to demand) conditions, plus the conditions representing other constraints (such as emission limits, renewable electricity targets, capacity limits, et cetera).


The report is confidential



funded by

European Commission, DG Joint Research Centre, Institute for Prospective Technological Studies (IPTS)


MEERI (Poland), TECNALIA (Spain)


Kris Vanherle

+32 16 74.51.29
reference: 11.18