Mechanism design for sustainable virtual power plant formation

Use of renewable energy sources for electricity generation is gaining prominence due to the increasing importance of sustainable development. Many of the electricity producers using renewable energy resources have very small generating capacities and it is a challenge to integrate them with the grid. Smart grids can play an important role in facilitating integration of these small distributed electricity producers to the power grid. The concept of virtual power plants (VPPs) is one of the important approaches used in smart grid for integrating distributed energy resources. The VPP aggregates electricity generated from many distributed energy sources such as wind turbines, small hydro, etc. The energy sources within a VPP are run by their individual owners and the VPP planner helps to aggregate and deliver the power to the grid. In this paper, we model the virtual power plant (VPP) formation problem with strategic producers (suppliers) using renewable energy sources as a combinatorial auction problem. We state and prove the necessary and sufficient condition for incentive compatible and individually rational auction mechanism in the presence of strategic suppliers. We also show that the dominant strategy for a supplier in our mechanism is to bid truthfully and improve her reputation.