Application Of Mechanism Design Theory In Electricity Markets

In electricity markets, the distinguishing features of electric power systems and the asymmetry of information between market manager and generation companies will cause some tactful bidding, which leads to acute price and will be harmful to the security and economy of electricity markets, as well as the optimal allocation for electric power resources. In order to stabilize the market price and allocate electric power resources effectively, the system should be enforced from both supply and demand sides. Based on mechanism design theory, Supply Function Equilibrium (SFE) model, Cournot model and Stackelberg model, this dissertation discusses the generators' strategic behaviors on the supply side, the bidding mechanism with incentive compatibility, the merit and implementation of interruptible load management on the demand side, and the design of incentive interruptible load contracts and its applications.Firstly, the SFE model is employed to analyze the influence of information upon the generators' strategic behaviors and the formation of tacit collusion in withholding capacity under the uniform price mechanism. Considering the two generators' strategic behaviors, i.e., strategic bidding and withholding capacity, the transformation from the withholding capacity of individual generator to the tacit collusion of all generators is developed by SFE model. The analysis shows that the amount of generators' withholding capacity is concerned with system load level and market structure in the former period of transformation, meanwhile the load threshold value in which withholding capacity emerges will decline if generators published their information on withholding capacity; the generators' tacit collusion will lead to durative acute prices in the latter period of transformation, and price spikes will emerge in peak load. Then the suggestions to retrain market power are put forward, and the analysis results are illustrated by numeral examples. Therefore, the analysis of generators' strategic behaviors shows that information could influence generators' behaviors and market price, so the generation bidding mechanism should sufficiently take the asymmetry of information in electricity markets into account.Secondly, an incentive generation bidding mechanism, which can reasonably recover capacity cost, is developed. Aimed at the generators' strategic bidding behaviors resulting from the asymmetry of information between market manager and generation companies in electricity markets, a new generation bidding mechanism with incentive compatibility is designed. Based on mechanism design theory, the new mechanism is able to lead generators to publish their true information, so an economic dispatching can be carried out, moreover, it can evaluate the capacity cost of the generating unit using bidding information and attract investments for generation capacity. Specially, the new mechanism would compensate the marginal units more for capacity cost than other units, thus it would conduce to entities of these peak unit investor with risk disgust. In addition, the new mechanism can reflect the tendency of load variation and encourage generators to respond it, and enhance the system security. The illustration using Monte Carlo demonstrates the merits of the proposedmechanism. So this is one of the original contributions in this dissertation.Thirdly, this dissertation researches the implementation of interruptible load management by utility in electricity markets from the aspect of credible menace. The different order of utility and generators moving will lead to different outcomes when utility implements interruptible load management. Based on Stackelberg and Cournot models, this dissertation respectively analyzes the market equilibriums of utility first-move, second-move and moving together with generators. The results show that the load curtailed will be more if utility moves firstly, i.e. first-mover advantage, which will be more effective to restrain market power of generators than other moves of utility. The equilibrium outcomes, however, will be identical with the ones of utility moving together with generators if utility's moves are not credible. Then this dissertation analyzes that utility how to make its moves credible, and then put forward a scheme to implement interruptible load management by utility in electricity markets. This part is one of the original contributions of this dissertation.Fourthly, this dissertation researches the design of incentive interruptible load contracts for distribution companies with risk preference, and the proposed model will be a new way to compete in electricity markets for distribution companies. The inelasticity of demand-side and characters of electric power systems induce the electricity price dynamics, which makes distribution companies exposed to immeasurable risk, meanwhile, distribution companies get a chance to obtain more benefit as well. Taking risk preference of distribution companies into account, this dissertation designs an incentive interruptible load contract model for discrete customer types using mechanism design. The analysis and illustration both show that the proposed model can lead customers to voluntarily reveal their true information and the electric power resources to be allocated efficiently, and in the meantime distribution companies benefit from the cost saving of electric power supply whatever the risk preference of distribution companies is. Therefore, incentive interruptible load contracts not only improve customers' demand elasticity, but also help distribution companies to avoid market risk. Especially, the proposed model will be a powerful tool to compete and manage risk efficiently for risk-taken distribution companies in electricity markets. This part is one of main contributions of this dissertation.Finally, an incentive interruptible contract model, which can take customer maximum interruptible load constraints into account, is developed from the aspect of practicability, and then its applications are researched in electricity markets. The presence of informational asymmetry between utility and customers may cause immeasurable inefficiencies in interruptible load management program, this dissertation develops an incentive compatible contract model for interruptible load management, which can lead customers to voluntarily reveal their true outage costs information. The proposed model allows customers having maximum interruptible load constraints to be taken into account and can apply to different optimization objectives for dispatching the interruptible customers, such as maximizing the utility's benefit or minimizing the total outage cost of customers. Then, maximizing the profit of utility or system operator, this dissertation studies three applications of the proposed model in electricity markets: electric power company bidding in a spot...