Effect of Bonus Payments in Cost Sharing Mechanism Design for Renewable Energy Aggregation

TL;DR

This paper proposes a novel cost sharing mechanism with bonus payments for renewable energy aggregation, improving market stability and fairness while addressing supply surplus incentives.

Contribution

It introduces a proportional cost sharing mechanism with bonus payments for surplus, ensuring stability, fairness, and desirable economic properties in renewable energy markets.

Findings

Mechanism satisfies budget balancedness, individual rationality, and fairness.

Results demonstrate stable market outcomes with bonus payments.

Numerical examples validate the effectiveness of the proposed mechanism.

Abstract

The participation of renewable energy sources in energy markets is challenging, mainly because of the uncertainty associated with the renewables. Aggregation of renewable energy suppliers is shown to be very effective in decreasing this uncertainty. In the present paper, we propose a cost sharing mechanism that entices the suppliers of wind, solar and other renewable resources to form or join an aggregate. In particular, we consider the effect of a bonus for surplus in supply, which is neglected in previous work. We introduce a specific proportional cost sharing mechanism, which satisfies the desired properties of such mechanisms that are introduced in the literature, e.g., budget balancedness, ex-post individual rationality and fairness. In addition, we show that the proposed mechanism results in a stable market outcome. Finally, the results of the paper are illustrated by numerical examples.