Mechanism Designs for Stochastic Resources for Renewable Energy Integration

Among the many challenges of integrating renewable energy sources into the existing power grid, is the challenge of integrating renewable energy generators into the power systems economy. Electricity markets currently are run in a way that participating generators must supply contracted amounts. And yet, renewable energy generators such as wind power generators cannot supply contracted amounts with certainty. Thus, alternative market architectures must be considered where there are “aggregator” entities who participate in the electricity market by buying power from the renewable energy generators, and assuming risk of any shortfall from contracted amounts. In this paper, we propose auction mechanisms that can be used by the aggregators for procuring stochastic resources, such as wind power. The nature of stochastic resources is different from classical resources in that such a resource is only available stochastically. The distribution of the generation is private information, and the system objective is to truthfully elicit such information. We introduce a variant of the VCG mechanism for this problem. We also propose a non-VCG mechanism with a contracted-payment-plus-penalty payoff structure. We generalize the basic mechanisms in various ways. We then consider the setting where there are two classes of players to demonstrate the difficulty of auction design in such scenarios. We also consider an alternative architecture where the generators need to fulfill any shortfall from the contracted amount by buying from the spot market.