Towards a simplified approach for modeling policymaker’s decisions in the power sector

Plenty of literature exists about how to model liberalized electricity generation markets for the medium and long terms, contributing to the analyze and understanding of those markets, helping companies to plan cost-efficient short-term market strategies andor long-term generation capacity investments, and supporting regulators and policymakers in policy decisions and market designs. However, those models do not explicitly consider the impact on investment decisions, mix of technologies and wholesale market prices; of policy decisions but as an external passive input to the model. This paper reviews existing approaches to model policy decisions in such a context, and provides a theoretical modeling framework that explicitly considers the interaction of policymakers’ decisions with the generation investment and operation, and customers’ response in a liberalized power system. Such kind of model, based on bi-level optimization, contributes to the long-term assessment of some policy decisions in the electricity sector.