Cournot oligopoly game-based local energy trading considering renewable energy uncertainty costs

Abstract

Abstract Facilitated by advanced information and communication technologies (ICTs), local energy trading develops rapidly, playing an important role in the energy supply chain. Thus, it is essential to develop local trading models and strategies that can benefit participants, not only stimulating local balancing but also promoting renewable penetration. This paper proposes a new local energy trading decision-making model for suppliers by using the Cournot Oligopoly game, considering the uncertainty costs of renewable energy. Four types of representative energy providers are modelled, traditional thermal generation, wind power, photovoltaic (PV) power, and electricity storage. The revenue of these technologies is extensively formulated according to their operation cost, investment cost, and income from selling energy. The uncertainty cost of renewable generation is integrated into the trading, modelled as a penalty for potential energy shortage that is derived from output probability distribution function (PDF). This trading model is formulated as a non-cooperative Cournot oligopoly game to enable energy suppliers to maximize their profits through local trading considering price. The response of the customer to energy price variations, i.e. demand elasticity, is also included in the model. A unique Nash equilibrium (NE) and optimum strategies are derived by the proposed Optimal-Generation-Plan (OGP) Algorithm. As demonstrated in a typical local market, the proposed approach can effectively model and resolve multiple suppliers’ competition in local energy trading. It can work as a vehicle to facilitate the trading between various generation technologies and customers, realising local balancing and benefiting all market participants with enhanced revenue and reduced energy bills.