Optimal hierarchical allocation in deregulated electricity market under PSP auction mechanism

In hierarchical electricity market, the retailers buy electricity from generation provider and then sell it to users. Retailers play an important role in the distribution channel by matching supply and demand, but they also potentially cause inefficiencies in electricity allocation. To induce an efficient allocation of electricity, we propose a novel hierarchical distributed method under PSP auction mechanism. Under this mechanism, each of players, either the generation provider or the retailers, obtains their electricity allocation through the PSP auction method by submitting a multi-dimensional bid profile, instead of telling their private cost or valuation function, then the retailers economically distribute the electricity, acquired in the PSP auction, among users. Moreover, the valuation function of retailers depends on the revenues that they sell the electricity to users. As a main result, in this paper we show that there exists an efficient Nash equilibrium (NE) for the underlying auction games.