Incentive-compatibility auction and renewable energy pricing strategy based on incomplete Information game of price cost declaration

Abstract

ABSTRACT The construction and development of the Electricity Spot Market (ESM) are beneficial to the fair distribution of power resources and the improvement of power system regulation ability. The original ESM was not designed to include renewable energy. Since there is almost no marginal cost for renewable energy, the renewable energy can not copy the thermal power unit price model after participating in ESM. The prevalent Locational Marginal Price (LMP) mechanism within the extant ESM structure encounters limitations wherein optimal benefits accrue to buyers and sellers only under specific conditions. This paper thus introduces an innovative electricity pricing model and trading settlement strategy tailored to the characteristics of wind turbine-generated power. To begin, we devise a novel electricity pricing model grounded in the construction expenses and predictive precision intrinsic to renewable energy sources. Subsequently, in synergy with the ESM framework, we formulate a Bayesian game model to compute benefits contingent upon bid success probabilities. A pricing strategy based on Vickrey – Clarke – Groves (VCG) is selected, which pays the other generating strategy as an incremental cost by removing itself. Empirical evaluations affirm the efficacy and rationality of the proposed approach. The outcomes of our study not only validate its applicability but also lay the groundwork for a fresh theoretical paradigm underpinning energy trading modalities in future ESM contexts.