Two-Stage Electricity Markets with Renewable Energy Integration: Market Mechanisms and Equilibrium Analysis

Abstract: We consider a two-stage market mechanism for trading electricity including renewable generation as an alternative to the widely used multi-settlement market structure. The two-stage market structure allows for recourse decisions by the market operator, which are not possible in today's markets. We allow for different conventional generation cost curves in the forward and the real-time stages. We have considered costs of demand response programs and black outs, and adopt a DC power flow model to account for network constraints. Our first result is to show existence (by construction) of a sequential competitive equilibrium (SCEq) in such a two-stage market. We argue social welfare properties of such an SCEq, and then design a market mechanism that achieves social welfare maximization when the market participants are non-strategic. We also show that under either a congestion-free or a monopoly-free condition, an efficient Nash equilibrium exists.