Electricity Pooling Markets with Strategic Producers Possessing Asymmetric Information I: Elastic Demand

TL;DR

This paper proposes a market mechanism for elastic demand electricity pooling markets with strategic producers and private information, ensuring efficiency, rationality, and budget balance at equilibrium.

Contribution

It introduces a novel mechanism that achieves price efficiency and aligns Nash equilibria with the centralized social welfare maximization in elastic demand markets.

Findings

Mechanism is individually rational and budget balanced.

At equilibrium, electricity prices equal marginal costs.

Energy production profiles at equilibrium maximize social welfare.

Abstract

In the restructured electricity industry, electricity pooling markets are an oligopoly with strategic producers possessing private information (private production cost function). We focus on pooling markets where aggregate demand is represented by a non-strategic agent. We consider demand to be elastic. We propose a market mechanism that has the following features. (F1) It is individually rational. (F2) It is budget balanced. (F3) It is price efficient, that is, at equilibrium the price of electricity is equal to the marginal cost of production. (F4) The energy production profile corresponding to every non-zero Nash equilibrium of the game induced by the mechanism is a solution of the corresponding centralized problem where the objective is the maximization of the sum of the producers' and consumers' utilities. We identify some open problems associated with our approach to electricity pooling markets.