Manipulation-Proof Virtual Bidding Mechanism Design

Abstract

The high penetration of renewable energy increases the price volatility between the day-ahead (DA) and real-time (RT) markets, with heightened power system operational risks. Virtual bidding, a rising financial instrument, allows financial entities without energy-generating capacity or demand to arbitrage between the DA and RT markets, which can in turn reduce the market spread between the two markets and thus contain system operation risks. However, in practice, incomplete information often affects the effectiveness of virtual bidding, which poses uncertainties to strategic bidding behaviors, and makes it more challenging to understand the market manipulation. To control such risks, in this paper, we first game theoretically characterize the Nash Equilibrium of virtual bidding with both complete and incomplete information, and evaluate the benefits of virtual bidding for both virtual bidders (VBs) and the system as a whole. Then, we design a joint tax-subsidy mechanism for VBs with truthfulness and individual rationality guarantees against the market manipulation. We also prove that the system average forecast is the key to influencing the virtual bidding equilibrium. Further, we design two information mechanisms to enable VB privacy protection and market risk control separately. Numerical studies based on ISO-NE electricity market data verify our theory.