Contract Theory Approach to Incentivizing Market and Control Design

TL;DR

This paper introduces a novel contract theory-based method for designing incentivizing markets in power grid control systems, aiming to improve market speed and efficiency by integrating economic models with dynamic grid models.

Contribution

It develops a new framework combining contract theory with dynamic power grid models to design incentivizing markets, addressing limitations of traditional contract problems.

Findings

Established fundamental formulas for optimal market design.

Clarified properties of the proposed incentivizing market.

Discussed challenges and limitations of the approach.

Abstract

We discuss an incentivizing market and model-based approach to design the energy management and control systems which realize high-quality ancillary services in dynamic power grids. Under the electricity liberalization, such incentivizing market should secure a high speed market-clearing by using the market players' private information well. Inspired by contract theory in microeconomics field, we propose a novel design method of such incentivizing market based on the integration of the economic models and the dynamic grid model. The conventional contract problems are analyzed for static systems or dynamical systems with control inputs directly operated by the principal. The analysis is, however, in discord with the incentivizing market. The main challenge of our approach is to reformulate the contract problems adapted to the market from the system and control perspective. We first establish the fundamental formulas for optimal design and clarify the basic properties of the designed market. We also discuss possibilities, limitation and some challenges in the direction of our approach and general market-based approaches.