Tournament Game And Vertical Cooperation Model In Electricity Market Based On Carbon Emission Reduction Dispatching

In a competitive electricity market, the behaviors of every participant have an impact on market states and dispatching. How to utilize this impact to achieve the most reasonable dispatching and to embody low-carbon dispatching rules is worthy of investigation. However, low-carbon power output is usually featured by high electricity price and low supply stability. Without favorable policies, power suppliers utilizing low-carbon technology are all too often disadvantaged in reconstructing the boundary market. On the part of grid corporation, it may be necessary to give priority to the dispatching of electricity generated by these suppliers and maximize the profits. Then, without reaching any contract for emission reduction, that is when only price transfer occurs between the two parties, both will be motivated to be involved in the cooperative use of low-carbon power dispatching.Creating an effective economic system for controlling emissions through two principles, namely, “payment by the emitters” and “paid use of the resources”, is an important means to translate a compulsory carbon emission reduction policy into a market-based mechanism governed by economic benefits. We discussed the dynamic response of the electricity market and the effectiveness of carbon emission reduction under tournament and cooperation mode, when priority is given to electricity generated by suppliers using low-carbon technologies. In this discussion, we mainly considered the impact of emission reduction technologies and synergy on the load demand of end users and the bounded rational learning on the part of grid corporation in power purchase. The research contents are organized in the following manner:(1) First, a tournament mechanism for emission reduction was considered, which is a mechanism targeting the generation side. Initial dispatching endowment and emission reduction capacities of the power suppliers were defined and treated as influence factors. Then the optimal decision making model was created with two oligarchic power suppliers participating in the emission reduction competition. An equilibrium marginal winning probability and the optimal intensity of emission reduction were solved under different number of strong power suppliers. The equilibrium results under three game structures were compared. After that, the model was extended to a behavioral economic model that incorporated a social comparison of power suppliers' emission reduction decision making. Finally, the analytical relationship between the model's optimal solution and behavioral parameters was presented.(2) Initial difference in power suppliers' market position was taken as the core variable. Theory of behavioral economics was applied to the tournament gaming problem for carbon emission reduction involving heterogeneous power suppliers. The equilibrium marginal winning probability and the optimal intensity of emission reduction were analyzed for different market structure and bonus structure. To verify the findings, experiments were conducted on the theoretical model using experimental economics. Then non-monetary factors that influence emission reduction decision making were introduced to extend the model. Thus an emission reduction tournament model considering psychological loss of a failing strong and psychological gain of a winning weak was obtained. The optimal parameter estimates and the equilibrium predicted values of the model were also provided.(3) Next a channel configuration composed of a single grid corporation and two power suppliers was considered. A stochastic differential game model of vertical cooperative emission reduction was presented, with the suppliers investing in emission reduction and the grid corporation utilizing electricity. Two decision making processes were considered, distributed and centralized. The equilibrium utilization, emission reduction, the expectation and variance of the power purchase price, and the system's optimal profit under the two decision making processes were calculated using optimal control theory. The optimal percentage of emission reduction cost sharing under the distributed decision making was calculated. The two decision making processes were compared, and the distribution of system's incremental profit under the profit sharing contract was discussed.(4) The stochastic differential game model of vertical cooperative emission reduction utilizing the combination of three emission reduction technologies was created, by considering the impact of emission reduction technologies and synergy on the load demand of end users, and the bounded rational learning on the part of grid corporation in power purchase. The equilibrium investment in carbon emission reduction, stable expectation and variance of amount of power purchase, and the optimal percentage of emission reduction cost sharing under the Stackelberg game strategy were calculated. Moreover, the effect of symmetry of emission reduction technologies used by the suppliers and the number of technologies used on feedback equilibrium was examined, and the model was extended to cooperative emission reduction model with multiple emission reduction technologies.On the basis of the above analyses, we arrived at the following conclusions:(1) Under the symmetry tournament involving two power suppliers, the optimal marginal winning probability and equilibrium carbon emission reduction were equal between the two participants whatever the amount of electricity generated by the stronger party. This conforms to the principle of equal opportunity for all. But as the policy response of grid corporation defining heterogeneity, both strong and weak suppliers will choose to decrease their optimal emission reduction levels. Compared with the basic model, the equilibrium intensity of emission reduction for the heterogeneous suppliers under the generalized model would increase. The increment was positively correlated to the values of behavioral parameters. In spite of the difference in optimal emission reduction strategies chosen under different homogeneous competition scenarios, the equilibrium emission reduction for the same game structure remained equal between the two homogeneous parties. But this was no longer true for the heterogeneous suppliers, and the equilibrium emission reduction was not necessarily lower as compared with that for two homogenous competing parties.(2) With three or four suppliers involved in the emission reduction tournament, increasing the number of winning prize would neither encourage further efforts from the strong neither force the weak to lower the optimal emission reduction. Whatever the initial dispatching endowment, as long as the experimental information was completely publicized, all suppliers tended to invest in emission reduction excessively. Under the scenario with two strong parties and one weak party, the intensity of emission reduction by the strong parties was positively correlated to the number of winners in the competition, which went contrary to the standard theory. Constraint conditions imposed on the parameters would greatly decrease the goodness-of-fit of the behavioral economic model. The equilibrium estimate of the generalized model most conformed to the basic features found from the verification experiment, while the specific nested model could be used to verify the feasibility of theoretical prediction.(3) Since the intensity of emission reduction competition between the suppliers increased under distributed decision making, the grid corporation had no motive to undertake more emission reduction costs for the suppliers. Rather the competition between the suppliers could be inhibited by lowering the percentage of emission reduction cost sharing. With the competition severity fixed, the grid corporation could adjust the percentage of emission reduction cost sharing as an incentive for the suppliers to increase the spending on emission reduction to the desired level. Under centralized decision making, grid corporation's low-carbon utilization, suppliers' emission reduction and system profit were all positively correlated to the marginal benefit from selling electricity. Emission reduction competition encouraged further efforts to reduce emission for suppliers with higher profit-making ability, but not for those with poor profit-making ability. If two suppliers had large difference in marginal benefit from electricity purchase and the intensity of emission reduction competition was low, cooperative gaming was conducive to increase the power purchase price. However, the risk for the suppliers and the grid corporation brought by the efforts to achieve higher power purchase price increased correspondingly.(4) For non-cooperative gaming, the grid corporation shared the cost of emission reduction on a selective basis. In addition, the application extent of the low-carbon technologies was positively correlated to the percentage of cost sharing. In cooperative gaming, the application extent of low-carbon technologies, expectation and variance of amount of power purchase under stability were all higher than the values in Stackelberg game. Moreover, a Pareto improvement existed in the system profit. The model considering the combination of multiple low-carbon technologies was compared with the cooperative model involving only one emission reduction technology. We found that the optimal application extent of low-carbon technologies, stable expectation and variance of amount of power purchase and equilibrium system profit were all positively correlated to the number of low-carbon technologies used and the factor of its influence on low-carbon load demand. But the decision to increase emission reduction technologies depended on the comparison of profit increment and the fixed costs generated.Highlights and innovations of the present study consist in the following aspects:(1) Under the low-carbon dispatching principle, suppliers considered the used of a combination of low-carbon technologies as a means of integrated marketing communications. Considering the impact of emission reduction technologies and synergy on the load demand of end users and the bounded rational learning on the part of grid corporation in power purchase, we presented a stochastic differential game model of vertical cooperative emission reduction involving the combination of three low-carbon technologies. Thus the effect of symmetry of emission reduction technologies used by the suppliers and the number of technologies used on feedback equilibrium were examined.(2) In the emission reduction tournament with two different initial dispatching endowment, we verified the effect of changing the bonus structure on emission reduction level. When three or four suppliers were involved, increasing the number of winning prize would make the strong decrease or maintain the current intensity of emission reduction; however, the weak would increase or maintain the current intensity of emission reduction. That is, increasing the number of winner neither encouraged further efforts from the strong nor forced the weak to decrease the efforts to reduce emission.(3) To explain the phenomenon of excess efforts to reduce emission among heterogeneous suppliers and the aberration of strong's behaviors under equilibrium in the experiment, we introduced a behavioral economic model that involved social comparison of emission reduction influencing utility functions of participants. Modeling was performed for the psychological loss and gain for the strong and weak, and the psychological parameters of the model were estimated using the data from the verification experiment. Equilibrium predictions from the generalized model without constraint conditions on behaviors more conformed to the actual intensity of emission reduction, while the specific nested model produced results consistent with the theoretical predictions.