Dynamic Market Mechanisms for Wind Energy

Abstract— We investigate the problem of marketmechanism design for wind energy. We consider a dynamic two-step model with one strategic seller with wind generation and onebuyer, who trade energy through a mechanism determined by adesigner. The seller has private information about his technologyand wind condition, which he learns dynamically over time. Weconsider (static) forward and real-time mechanisms that takeplace at time T = 1 and T = 2, respectively. We also proposea dynamic mechanism that provides a coupling between theoutcomes of the forward and real-time markets. We show thatthe dynamic mechanism outperforms the forward and real-timemechanisms for a general objective of the designer. Therefore,we demonstrate the advantage of adopting dynamic marketmechanisms over static market mechanisms for wind energy. Thedynamic mechanism reveals information about wind generationin advance, and also provides flexibility for incorporation ofnew information arriving over time. We discuss how our resultsgeneralize to environments with many strategic sellers. We alsostudy two variants of the dynamic mechanism that guarantee nopenalty risk for the seller, and/or monitor the wind condition.We illustrate our results with a numerical example.