Energy Market Game Assignment

After the midterm, we will be playing the Stanford Energy Market Game. This is a realistic game based on the California electricity market. The goals of this exercise are to:

Getting started

Reading

For additional information during the course of the game, see the manual.

We will go over the game, and various topics in class. See the slides linked to on the module for that day.

Groups

This game involves seven firms (“Gencos”). The class will be divided up into teams of 4 or 5. To start, each team will be randomly assigned a generation company. Group Genco assignments are listed in the “Team List” tab in the Google sheet for each section. In week 2 of the game, teams will bid for generation companies. The team with the highest bid for each Genco will be assigned that Genco for the remainder of the game.

Logistics and Game Play

All of the bidding and outcomes in the game will be organized on Energy Game website for the course that I have shared with you. There is a page for each section. Then the “Game Links” tab has links to specific instances of the game. We will go over the basics of bidding and looking at outcomes in class.

We will start by playing a few example games in class. Then groups will play two distinct rounds of games.

Bidding due dates and deliverables

Round 1 – Assigned Gencos

For this round, each team will be in charge of the Genco they were assigned. Bids will be submitted by 9 pm on the following days:

  • Thursday 10/22: Baseline
  • Friday 10/23: New Demand
  • Sunday 10/25: Congestion

Deliverable 1: Summarize strategy and results

Write a short memo (1 page) or slides (3-4) summarizing the first three days of the game. Must include:

  • What was your strategy for bidding in each round?
  • Did things work out as you expected? Why or why not?
  • Which of your plants was most profitable? Which was least profitable? If you could get rid of one plant, which would it be?

Round 2 – Bidding for Gencos

For the next round of the game, Gencos will be assigned to teams via auction. Each team will submit bids for each generation company, and Gencos will be assigned to the highest bidder. Teams will then compete in several more days of bidding (see below). At the end of those biddings games, total profits will be calculated for each team, inclusive of the cost of bidding on generation companies. The team with the highest profits will be get a small prize.

Deliverable 2: Submit bids for Gencos

Each team will submit bids for each generation company by 9 pm on Wednesday 10/28. Bids must be accompaniied by a short memo explaining how the bids were determined (1-2 pages).

After Gencos are reassigned, the game will continue with the following bidding schedule:

  • Thursday 10/29: Baseline
  • Friday 10/30: Updated demand
  • Sunday 11/1: Congestion
  • Monday 11/2: Carbon tax ($163/ton CO2)
  • Tuesday 11/3: Carbon tax + New demand
  • Wednesday 11/4: Renewables

Deliverable 3: Final Writeup

Each group will submit a final memo summarizing their strategy and results from the energy market game. Writeups are due Sunday 11/8 at midnight.

The memo should be no more than 3 pages of double spaced text. All tables and figures should be labeled and placed in an appendix. These tables and figure do not count against the page requirement. All writeups must be submitted as a PDF on Canvas (other formats will not be accepted).

Requirements:

  • Every group must have an appendix table (Table 1) containing the total production of each generator in the firm’s portfolio (across all round 2 periods) in each round of the game. Along the bottom of the table, include the total generation and total profits of the firm in each round of the game.
  • The memo text should address the following questions:
    1. Explain how you came up with your bidding strategy, highlighting how it evolved over the course of the game. How did you come up with your bids in each round? What worked well and what didn’t work well?
    2. Think about the bids for Gencos you submitted before round 2 started. If you could repeat this game, auctioning them again, how would you change your bids for Gencos and why?
    3. Based on your experience in the game, do you think market power is likely to be a big problem in deregulated electricity markets? Justify your answer.
    4. Based on your experience in the game, do you think a carbon tax would be an effective way to reduce emissions in the electricity sector? Justify your answer.