Controllable vs. Random: Renewable Generation Competition in a Local Energy Market

Abstract

Renewable energy resources are playing an increasingly important role in serving consumers at the distribution level of power systems. This paper studies a duopoly two-settlement local renewable energy market, in which one energy supplier has controllable generations (with the help of energy storage) while the other supplier has random generations. In the day-ahead energy market, suppliers determine the bidding prices and quantities, and then consumers decide the energy quantity to purchase from each supplier. In the real-time energy market, a supplier gets penalized if he cannot deliver the amount of energy as committed in the day-ahead market. We formulate the interactions between suppliers and consumers in the day-ahead market as a two-stage problem. The two-dimensional bidding strategies (price and quantity) in the day-ahead market together with the penalty in the real-time market increase the complexity of the equilibrium analysis. To address such a challenge, we first derive weakly dominant bidding quantity strategies for both suppliers, and then characterize the corresponding pure and mixed price equilibrium. We demonstrate that the supplier with controllable generations can earn a much higher payoff than the supplier with random generations. In some cases, however, we show the perhaps counterintuitive result that a higher penalty or a higher variance of random generations may increase both suppliers' payoffs.