Incentive-Based Coordination Mechanism for Renewable and Conventional Energy Suppliers

Abstract

This paper proposes an incentive-based coordination mechanism between a wind energy supplier (WES) and a conventional energy supplier (CES) to achieve a Pareto improvement. To comply with its day-ahead schedules and hedge against the intermittent wind energy generation, the WES is allowed to outsource a back up power capacity from the CES via making a bilateral contract. However, unanimous agreement cannot always be achieved since each party plays on its own interest. We employ the concept of swing option contracts to further encourage the suppliers to reach an agreement of the contract. On the one hand, the WES can leverage the uncertainty of wind output by covering possible energy shortage from the CES. On the other hand, the CES can optimally allocate its energy capacity by participating into the electricity market and offering capacity to backup the shortage of energy from the WES. The bidding problem for each supplier is formulated as a multi-stage stochastic programming model, with the objective of maximizing the expected profit while maintaining a low level of risk. Unlike the traditional two-stage approach, the proposed multi-stage model can effectively capture the impact of rebidding process in the real-time market. We incorporate conditional-value-at-risk as a risk measure to characterize the effect of risk perception of suppliers on their bidding decisions. Meanwhile, a game theory based approach is developed to obtain the contract items between the suppliers. Implementation results on real cases are provided to illustrate the effectiveness of our proposed framework.