Electricity market design and implementation in the presence of asymmetrically informed strategic producers and consumers: A surrogate optimization-based mechanism

Mohammad Rayati and Demosthenis Teneketzis

Energy Economics, 2022, vol. 109, issue C

Abstract: We consider electricity networks where the agents (producers and consumers) are strategic and possess asymmetric information about the networks’ status. The network model accounts for power losses, line congestion, and financial transmission rights (FTRs). We propose a mechanism (a set of rules for energy production and consumption) that takes into account the network model, the agents’ strategic behavior and their informational asymmetries, and has the following properties at all Nash equilibria of the game induced by it: (i) it is budget balanced (the sum of taxes received by the agents and the sum of subsidies paid to the agents is equal to zero); (ii) it implements the optimal power flow (OPF) dispatch (equivalently it implements the social welfare maximizing dispatch); (iii) it is price efficient (the price received per unit of energy production is equal to the price paid per unit of energy consumption, and they are both equal to the price corresponding to the OPF dispatch); (iv) it is individually rational (the strategic agents voluntarily participate in the mechanism). We also propose a tâtonnement-process (an algorithm), based on a best-estimate method, and prove that it converges to a Nash equilibrium of the game induced by the proposed mechanism. The allocations (energy production and consumption) resulting at each step of the tâtonnement-process are a feasible solution of the OPF problem.

Keywords: Electricity market; Financial transmission right (FTR); Optimal power flow (OPF); Mechanism design; Local public goods; Tâtonnement-process (search for similar items in EconPapers)
JEL-codes: C72 D4 D47 D8 D82 L94 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:109:y:2022:i:c:s0140988322001050

DOI: 10.1016/j.eneco.2022.105929

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