Dynamic Market Mechanisms for Wind Energy

TL;DR

This paper designs and compares dynamic market mechanisms for wind energy trading, demonstrating their superiority over static mechanisms by effectively revealing information and providing flexibility in a strategic setting.

Contribution

It introduces a novel dynamic mechanism for wind energy markets that outperforms static mechanisms and discusses its generalization and variants.

Findings

Dynamic mechanisms outperform static ones in wind energy markets.

The proposed mechanism improves information revelation and flexibility.

Numerical examples validate the mechanism's advantages.

Abstract

We investigate the problem of market mechanism design for wind energy. We consider a dynamic two-step model with one strategic seller with wind generation and one buyer, who trade energy through a mechanism determined by a designer. The seller has private information about his technology and wind condition, which he learns dynamically over time. We consider (static) forward and real-time mechanisms that take place at time T=1 and T=2, respectively. We also propose a dynamic mechanism that provides a coupling between the outcomes of the forward and real-time markets. We show that the dynamic mechanism outperforms the forward and real-time mechanisms for a general objective of the designer. Therefore, we demonstrate the advantage of adopting dynamic market mechanisms over static market mechanisms for wind energy. The dynamic mechanism reveals information about wind generation in advance, and also provides flexibility for incorporation of new information arriving over time. We discuss how our results generalize to environments with many strategic sellers. We also study two variants of the dynamic mechanism that guarantee no penalty risk for the seller, and/or monitor the wind condition. We illustrate our results with a numerical example.