A cooperative game theoretic analysis of incentives for microgrids in regulated electricity markets

Abstract

We model the economic incentives for market participants to cooperate in the development of a microgrid in a small electricity network served by a regulated utility. The microgrid can provide energy, ancillary services, heat and enhanced reliability to its customers. Using the framework of cooperative game theory, assuming exchangeable utility and full public information, we quantify how microgrid development affects prices, costs and benefits for parties in the network under alternative sets of assumptions. Our analysis yields three main results. First, market failures mean that the misalignment between the social objective (market efficiency) and objectives of private parties (profit maximization and consumer surplus maximization) can incent investment in inefficient scale and types of microgrid installations. We discuss how regulators can facilitate the realization of efficient market outcomes. Second, if the regulator does not correctly anticipate the timing of microgrid introduction and does not account for it in the ratemaking process, social benefits associated with microgrid development could be lower and suboptimal investments may take place, relative to the case in which there is no regulatory lag. Third, utility customers could reap most of the benefits of microgrid introduction, if microgrids result in lower electric rates for all customers. However, when regulated prices are above the marginal cost of power provided by the utility, introducing microgrids can instead raise rates and the resulting economic losses to utility customers might exceed the economic gains to the microgrid owner and its consumers. Our study shows how the cooperative game framework can be useful to regulators and policy makers for identifying the beneficiaries of microgrid promotion policies, and for correcting the market failures in utility pricing that can distort incentives for microgrid investment.

Incentive Mechanism of Micro-grid Project Development

“…Ramchandran et al [30] built the game model from the perspective of renewable energy corporation, analyzed the feasibility of the micro-grid driven by photovoltaic, biomass, and a hybrid of the two, and found that the photovoltaic micro-grid with subsidy mechanism was more stable in the scenario analysis. Lo Prete et al [31] studied how micro-grids affect the price, costs and benefits of participants in the electricity market by cooperative game, and put forward corresponding measures to motivate the development of micro-grids. Zhang et al [32] studied the financial model which supported micro-grid development with case studies, identified the advantage of crowdfunding in micro-grid project financing, and designed interactive scenarios for stakeholders and organizations in crowdfunding.…”

Game-theoretic modeling of curtailment rules and network investments with distributed generation

“…Game-theoretical analysis was utilised in smart grid settings with demand-side management [53,54,55,56], Virtual Power Plants [57,58,59] and cost-sharing of generation and transmission capacity [41]. Both non-cooperative [60] and cooperative [61] game theoretical models were used to clear deregulated electricity markets or were used to model the operation of microgrids [62]. Min et al [63] defined the generators' strategies by Nash equilibria.…”

Agente Integrador de Recursos Energéticos Distribuidos como Oferente de Energía en el Nivel de Distribución

“…Una herramienta de análisis usada en microrredes es la teoría de juegos cooperativos donde se evalúan diferentes escenarios de sinergia entre los agentes del mercado [17].…”

“…De igual forma los cambios en los mercados energéticos a partir de la masificación de DER ha permitido la entrada de nuevos participantes en el mercado de energía, como agregadores de servicios [17]- [19]. A nivel de distribución se encuentran experiencias de mercados con gran versatilidad en cuanto a planes y tarifas para los usuarios, como es el caso del mercado de Texas en Estados Unidos, donde se cuenta con un mercado minorista en el que diferentes proveedores participan en calidad de proveedores de energía al menudeo (REP -Retail Electric Providers en inglés).…”