A simple payoff allocation mechanism achieves efficiency and stability in renewable energy aggregation

Abstract

Aggregating statistically diverse renewable power producers (RPPs) is an effective way to reduce the uncertainty of the RPPs. The key question is how to design a mechanism to aggregate the RPPs and distribute the payoffs among them. In this paper, a simple payoff allocation mechanism (PAM) is shown to achieve a wide range of desired properties. In particular, social efficiency, stability (in the core), and no collusion are achieved at the unique pure Nash Equilibrium (NE) of the non-cooperative game of RPPs induced by the PAM. As a result, an ideal “Price of Anarchy” of one is achieved. Moreover, a closed form expression of the unique pure NE is derived. A simulation study is conducted using the data of ten wind power producers in the PJM interconnection.