Review of Market Power Detection in Distribution Networks: Case Study on Local Flexibility Markets

Market power in electricity markets refers to the ability of a participant or group of participants to earn additional profits by manipulating market prices. In distribution networks (DNs), market power has become a significant concern with the growth of local electricity markets (LEMs) and local flexibility markets (LFMs) as more distributed energy resources (DERs) are integrated into the grid. Detecting and averting market power is essential to ensure efficient and fair local market operations. This paper provides a comprehensive review of existing methodologies for market power detection in electricity markets, highlighting their applicability and limitations within local markets in the DNs. A simulation environment using multi-agent reinforcement learning (MARL) is developed through a case study on an LFM to model the strategic interactions and market power of participants. By utilizing this simulation environment and the known profit gap between truthful bidding prices based on marginal costs and strategic bidding prices using the MARL-based method, various market power detection indices are evaluated for their accuracy and robustness. The simulation results highlight the need to consider the market design and the presence of prosumers when applying conventional market power detection indices to LFMs, particularly with regard to pricing mechanisms.