Mechanism Design for Virtual Power Plant with Independent Distributed Generators

Penetration of distributed energy resources (DERs) in the legacy grid is leading to lower wholesale electricity prices, higher balancing costs, and reliability issues. We study a virtual power plant (VPP) - an aggregation of DERs - as a feasible and non-disruptive way of integrating these resources into electricity markets. We design the VPP with a combination of dispatchable and non-dispatchable generators which are privately owned and might have private information. The VPP acts as an intermediary between the generators and the day-ahead wholesale market and balances the system locally in real time. Using mechanism design, we design heuristic transfers of the VPP to the generators to reduce the operating cost of the overall system. From the simulations, we conclude that the overall cost of the system and the behavior of the generators and the VPP with the designed transfers are similar to those of the centralized VPP case, where the VPP owns and manages the generators within its territory.