Efficiency Loss for Variable Renewable Energy Incurred by Competition in Electricity Markets

Abstract

Variable renewable energy (VRE) has undergone rapid development worldwide. Currently, VRE is gradually accepted as a regular power source to participate in the power market. However, due to the fluctuating and uncertain nature, the strategic offering behaviors of VRE generation companies (GENCOs), especially in terms of available capacity withholding, are difficult to supervise and regulate. To explore the hidden danger of VRE GENCOs’ strategic offering behaviors and the sequential impacts on the market operation, this paper proposes an analysis framework, which is built based on day-ahead and real-time two-stage markets, with multiperiod coupling. The bilevel model is utilized to analyze the decision-making process of the strategic VRE GENCOs. The bilevel model is nonlinear, which is then transformed into a mixed integer linear format by applying linearization methods. An illustrative example, with a high penetration of VREs, is proposed. The strategic offering behaviors of VRE GENCOs are comprehensively analyzed. The incurred efficiency loss and payment increase are discussed with various market settings. To demonstrate the effects of the regulatory policies on the VRE strategic offering behaviors, a deviation penalty policy imposed on the deviation of VRE outputs is also proposed and tested.