A game-based coupled electricity and carbon trading market considering competitive bidding strategy and uncertainty of demand response

The coupling of electricity and carbon trading markets is essential for achieving decarbonization in the power sector. To analyze market participants’ strategic behaviors in the coupled electricity and carbon trading markets, this paper proposes a tri-level Nash-Stackelberg-Nash (N-S-N) model that captures competitive bidding strategy among generation companies (GenCos) while considering demand response (DR) uncertainty. The upper-level problem models the strategic bidding of a GenCo to maximize its profits. The middle-level problem addresses coupled electricity and carbon trading market clearing with marginal prices. The lower-level problem models price-elastic DR. To handle DR uncertainty, this paper proposes a distributionally robust chance-constrained (DRCC) optimization problem that is embedded in the tri-level N-S-N framework, ensuring robust decision-making while maintaining economic efficiency. Case study results on an IEEE 30-bus test system demonstrate that strategic behaviors of market participants reduce operational costs, increase social welfare, and reduce carbon emissions. Furthermore, the DRCC approach effectively ensures robustness under DR uncertainty, with a minimal sacrifice in economic efficiency.