Trading mechanism for social welfare maximization in integrated electricity and heat systems with multiple self-interested stakeholders

Weiye Zheng, Siyu Xu, Hao Lu, Wenchuan Wu and Jianquan Zhu

Energy, 2024, vol. 306, issue C

Abstract: Cooperation across multiple energy sectors is capable of maximizing social welfare as revealed by existing research, but such holistic dispatch can be hardly implemented in a reality where energy sectors are run by different stakeholders respectively. To fill this gap, energy trading among multiple self-interested stakeholders is investigated in this paper. To maximize the social welfare of the trading results, an effective pricing method, referred to as network-constrained generalized locational marginal prices, is proposed. A trading mechanism is then carefully designed to encourage stakeholders to trade at network-constrained generalized locational marginal prices, while economic properties of the resultant generalized Nash equilibrium are analyzed in depth. The effectiveness of the mechanism is validated in two integrated electricity and heat systems with different scales. Numerical comparison demonstrates that existing non-cooperative mechanisms may result in undesirable deadweight losses, while surplus sharing is a tricky issue in cooperative mechanisms, making the cooperation unstable and infeasible. On the contrary, each stakeholder may optimize its subsystem in a self-interested manner in the proposed mechanism, but the overall outcome strikingly coincides with social welfare maximization.

Keywords: Integrated energy system; Combined heat and power generation; Energy trading; Locational marginal pricing; Market mechanism (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:306:y:2024:i:c:s0360544224020413

DOI: 10.1016/j.energy.2024.132267

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