Mechanism Design for the Energy Market

Abstract

Currently, the electricity market is shifting from fossil fuels to renewable resources. The lack of controllability of the output of solar cells and wind turbines conflicts with the requirement that suppliers match their production with the demand at all times. Our solution is to drop this requirement and instead use flexibility on side of the consumer to align the demand with an optimal production schedule. In this thesis, we first investigate this scheduling problem. We then consider the setting in which consumers and suppliers have private information about their jobs and costs. In this context we propose the Transfer Redistribution Mechanism, which is budget balanced and individually rational. Under the assumption that consumers report truthfully, the mechanism is efficient. We conjecture that in practice truth-telling is a best strategy for consumers. We present experimental results that show that increased flexibility of jobs reduces the costs of suppliers. Furthermore, the consumers are found to benefit when the flexibility of their jobs is increased, thereby supporting the conjecture that truth-telling is a best strategy.