Electricity Sector in Mexico: Dynamic Government Subvention Model

Abstract

In this paper, we develop a numerical model for imperfect electricity market with governmental subsidies. The model is driven by generalized Cournot model and applied to the current electricity market in Mexico. State-owned electricity producer maximizes its profit taking into account subsidies endowed by government. We establish the problem as mixed complementarity problem [MCP]; and as programming language General Algebraic Modeling System (GAMS) has been chosen. As the solver to obtain numerical solutions we have chosen the solver PATH which is the generalized Newton Method. We have found that generalized Cournot model brings quite reasonable and most realistic prices and demand for electricity, compared to classical Cournot case.