Equilibrium analysis of electricity market with wind power bidding and demand response bidding

Abstract

In electricity markets with strategic bidding of wind power, it is important to handle wind power’s output deviation. In this paper, the scenario where customers in Demand Response (DR) program matches the wind power’s output deviation through strategic bidding is studied, and a stochastic equilibrium model of the electricity market with wind power bidding and demand response bidding is proposed. In this model, linear supply function bidding is applied by both wind power producers and traditional power producers to match power demand in wholesale market. In order to compensate for the wind power’s output deviation, two market models in balancing market for demand response are proposed where supply function bidding and demand function bidding are applied by DR customers to match supply deficit and surplus respectively. Furthermore, the penalty cost for output deviation of the wind power producer is determined by the equilibrium price in balancing market. The equilibrium problems are solved by being reverse-engineered into convex optimization problems and the existence and uniqueness of the Nash equilibrium is theoretically proved. A distributed dual gradient algorithm is further proposed to achieve the equilibrium. Numerical examples are presented to verify the validity of the proposed model and effectiveness of the algorithms.