Optimal energy procurement with long-term photovoltaic energy contracts considering generation uncertainty: A two-dimensional auction approach

Abstract

The procurement auction scheme for long-term photovoltaic (PV) energy contracts is being implemented in various countries to ensure stable profits for potential PV generators. However, in most of these auction formats, there is a deficiency in that they consider only the contract price and capacity, neglecting to account for the uncertainty of generation efficiency. In this regard, this study proposes a procurement auction scheme for long-term photovoltaic (PV) energy contracts based on mechanism design theory. We developed a two-dimensional auction model in which PV generators bid their cost and capacity. The energy buyer then determines the winners and enters into contracts with them for a fixed period. We incorporated the capacity factor into the payoff functions of both the buyer and the sellers to reflect different generation efficiencies of generators. Following the revelation principle, we characterized the incentive-compatible, individually rational direct mechanism that maximizes the buyer’s expected payoff during the contract period. We also proposed a computation algorithm to implement the auction. Numerical analysis using data from the Korean PV auction market suggested that the proposed model demonstrates results similar to the uniform price auction in terms of the levelized cost of electricity and contract price, and these results are lower than those of the Vickrey auction. Furthermore, despite the fact that the proposed auction results in a slight increase in social costs (approximately 1% more than the Vickrey auction), it maximizes the expected procured electricity and the auctioneer’s payoff.