Design and Game-Theoretic Analysis of Community-Based Market Mechanisms in Heat and Electricity Systems

In an increasingly decentralized energy system with tight interdependencies with heat and electricity markets, prosumers, who act both as consumers and producers at the interface between the markets, are becoming important operational flexibility providers. Policy-makers and market operators need a better understanding of the motivations and behavior of prosumers in order to harness their underlying flexibility.

In that context, existing market mechanisms must be accompanied by decision-making tools which enable direct participation of prosumers and cooperation among them towards a social choice. This work focuses on designing a community-based market mechanism, in which prosumers can pool their heat and electricity production and consumption, and coordinate their participation in heat and electricity wholesale markets.

A central research question that is addressed, is to understand how this mechanism can affect the outcomes of the interactions among individuals towards a social choice, and in particular incentivize cooperation among prosumers. Game-theoretic concepts are used to analyze the properties of the proposed market mechanism with different allocation schemes, namely uniform pricing, Vickrey-Clarke-Groves, Shapley value, and nucleolus.

This analysis shows that it is beneficial for the community as a whole to cooperate and that there exists a set of stable allocations for the proposed mechanism. Additionally, although no allocation can satisfy all fundamental desirable market properties, this study demonstrates that the proposed mechanism based on a nucleolus allocation can provide an interesting trade-off between stability, efficiency, and incentive compatibility.

Finally, the concepts and properties discussed in this work are illustrated in a case study.