Energies, Vol. 18, Pages 6542: Diffusion Neural Learning for Market Power Risk Assessment in the Electricity Spot Market

Energies, Vol. 18, Pages 6542: Diffusion Neural Learning for Market Power Risk Assessment in the Electricity Spot Market

Energies doi: 10.3390/en18246542

Authors:
Peng Ji
Li Tao
Ying Xue
Liang Feng

Market power remains a persistent challenge in liberalized electricity spot markets, where generators can manipulate bids to distort prices and extract rents. Traditional monitoring approaches—such as structural indices or simulation-based models—offer partial insights but fail to capture the nonlinear, spatially correlated propagation of strategic behavior across transmission-constrained networks. This paper develops a diffusion neural learning framework for market power risk assessment that integrates welfare optimization, nodal pricing dynamics, and graph-based deep learning. Specifically, a Graph Diffusion Network (GDN) is trained on simulated spot market scenarios to learn how localized strategic deviations spread through the network, distort locational marginal prices, and alter system welfare. The modeling framework combines a system-wide welfare maximization objective with multi-constraint market clearing, while the GDN embeds network topology into predictive learning. Results from a case study on an IEEE 118-bus system demonstrate that the proposed method achieves an R2 of 0.91 in predicting market power indices, outperforming multilayer perceptrons, recurrent neural networks, and Transformer baselines. Welfare analysis reveals that distributionally robust optimization safeguards up to 3.3 million USD in adverse scenarios compared with baseline stochastic approaches. Further, congestion mapping highlights that strategic bidding concentrates distortions at specific nodes, amplifying rents by up to 40 percent. The proposed approach thus offers both predictive accuracy and interpretability, enabling regulators to detect emerging risks and design targeted mitigation strategies. Overall, this work establishes diffusion-based learning as a novel and effective paradigm for electricity market power assessment under high uncertainty and renewable penetration.