On the Equilibria and Efficiency of Electricity Markets with Renewable Power Producers and Congestion Constraints

Abstract: With increasing renewable penetration in power systems, a prominent challenge in efficient and reliable power system operation is handling the uncertainties inherent in the renewable generation. In this paper, we propose a simple two-settlement market mechanism in which renewable power producers (RPPs) participate, so that a) the independent system operator (ISO) does not need to consider the uncertainties of the renewables in its economic dispatch, and yet b) the market equilibrium is shown to approach social efficiency as if the ISO solves a stochastic optimization taking into account all the uncertainties. In showing this result, a key innovation is a new approach of efficiently computing the Nash equilibrium (NE) among the strategic RPPs in congestion-constrained power networks. In particular, the proposed approach decouples finding an NE into searching over congestion patterns and computing an NE candidate assuming a congestion pattern. As such, the computational complexity of finding an NE grows only cubically with the number of RPPs in the market. We demonstrate our results in the IEEE 14-bus system and show that the NE approaches social efficiency as the number of RPPs grows.