  We investigate group formations and strategic behaviors of renewable power
producers in electricity markets. These producers currently bid into the
day-ahead market in a conservative fashion because of the real-time risk
associated with not meeting their bid amount. It has been suggested in the
literature that producers would bid less conservatively if they can form large
groups to take advantages of spatial diversity to reduce the uncertainty in
their aggregate output. We show that large groups of renewable producers would
act strategically to lower the aggregate output because of market power. To
maximize renewable power production, we characterize the trade-off between
market power and generation uncertainty as a function of the size of the
groups. We show there is a sweet spot in the sense that there exists groups
that are large enough to achieve the uncertainty reduction of the grand
coalition, but are small enough such that they have no significant market
power.We consider both independent and correlated forecast errors under a fixed
real-time penalty. We also consider a real-time market where both selling and
buying of energy are allowed. We validate our claims using PJM and NREL data.
