Contract Theory Approach to Incentivizing Market and Control Design
This work addresses the challenge of designing high-speed market-clearing mechanisms for ancillary services in liberalized electricity markets, though it remains largely theoretical with no concrete numerical results.
The paper proposes a novel design method for incentivizing markets in dynamic power grids by integrating contract theory with dynamic grid models, establishing fundamental formulas for optimal market design and clarifying basic properties.
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.