An Optimal Generation Pricing Method under Two-Dimensional Information Asymmetry

When generator enterprises bid in a deregulated market, they may not be willing to share the costs information needed to perform an economic dispatch of the generation with the grid company. Under both uniform clearing pricing mechanism and pay-as-bid pricing mechanism, the generators have motivation to submit deviated costs so as to maximize the profits they can earn. This will result in an inefficiency dispatch and make the electricity power system unstable. Mechanism design with revelation principle is adopted from game theory and applied to solve this information asymmetric problem. That is, the grid company has to design effective yet attractive contracts for different costs of enterprises that can encourage them to reveal their own true information. This paper views both marginal costs and fixed costs as private information and constructs a two-dimensional principal-agent model, and then the Kuhn-Tucker optimal condition is used to deal with it. The conclusion shows that the allocation of this optimal pricing mechanism is dependent on the degree of the difference of fixed cost information relative to the difference of marginal cost information. A numerical example is presented to illustrate the validity of the method and the model.