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Game Theoretic Analysis of the Ancillary Service Electricity Market


P.G. Sessa

Semester Thesis, SS16 (10514)

This project analyzes the applicability of the Vickrey-Clarke-Groves (VCG) mechanism to control reserves procurement auctions. In Switzerland, auctions for secondary and tertiary reserves are cleared by a stochastic optimization algorithm and the market mechanism is pay-as-bid. Energy producers have therefore no incentive in lowering their bids and it is not clear what the optimal bidding strategy should be. We firstly show how the Vickrey payment rule would make the mechanism incentive compatible leading hence to dominant-strategy equilibria in the Swiss ancillary service market. As a consequence, the resulting payments made by the TSO may be unnecessarily high and some power plants could even exploit the mechanism through cooperation. Using the Core (from coalitional game theory) as a competitive standard, we investigated under which conditions the outcomes of such auctions are competitive. Considering simpler auctions where the TSO has to procure fixed amounts of MWs, we concluded that if participants follow specific bidding constraints, the Core, and thus competitive, outcomes are always guaranteed. Although the latter result cannot be perfectly extended to the Swiss stochastic procurement auctions, through some simulations we show the applicability of the VCG mechanism to the Swiss ancillary service market.

Supervisors: Neil Watson, Maryam Kamgarpour


Type of Publication:

(13)Semester/Bachelor Thesis

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% Autogenerated BibTeX entry
@PhdThesis { Xxx:2016:IFA_5483
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