Integration of day-ahead energy market using VCG type mechanism under equality and inequality constraints

Abstract

Applications of decentralized operation of energy networks based on demand response are focused on by many researchers. Usually, methods for decentralized operation use prices to maximize social welfare, and require exchanges of true information in optimization process. However, we assume that generally rational market participants are not willing to reveal their private information. In a future competitive energy market, such rational consumers' selfish behaviors will reduce the whole network's benefit. In this paper, we propose a mechanism to integrate rational consumers' behavior into the social benefit. We first describe a concrete model for consumers, and then formulate a dynamic energy demand network in which a day-ahead market is formed with equality and inequality constraints. For this market, we propose a mechanism based on the Vickrey-Clarke-Groves (VCG) mechanism, which guarantees incentive compatibility and individual rationality. We show that this mechanism successfully inherits incentive compatibility and individual rationality of the VCG mechanism under equality and inequality constraints, which are not described in previous works. Finally, through numerical experiment, we demonstrate effectiveness of the mechanism.