Impact of Penalty Structures on Virtual Power Plants in a Day-Ahead Electricity Market

Abstract

The rapid increase in distributed energy resources has augmented the significance of virtual power plants (VPPs), which are essential for the aggregation and management of variable renewable energy resources (RERs). The inherent variability and uncertainty of RERs necessitate the implementation of deviation penalties to address the discrepancies between the awarded bids and actual generation, which is crucial in maintaining market stability and ensuring reliable grid operations. Therefore, this study proposes a framework for deviation penalty structures, categorizing penalties based on three factors: the penalty scope, penalty rate, and penalty coefficient. The simulation results show that the penalty scope significantly influences the revenue of VPPs, with over-generation penalty structures typically yielding higher profitability. Conversely, dual-sided penalty structures result in lower total revenues compared to one-sided penalty structures. For instance, when the penalty price coefficient is set to 0.1, the total revenue of a dual-sided penalty structure is approximately 62.26% lower than that of a one-sided penalty structure during the morning period. The results also demonstrate that deviation penalty structures have a direct impact on power deviations and curtailment behavior. Finally, we offer recommendations for the design of an effective penalty structure aimed at assisting policymakers and distributed system operators (DSOs) in structuring market mechanisms, which not only facilitate the integration of RERs but also enhance their economic viability within electricity markets.