Incentive-based coordination mechanism for backup renewable energy investment

Due to the intermittency of wind power, wind power suppliers have high risks for not being able to deliver enough energy they committed to the energy market. Outsourcing backup power capacities from conventional suppliers is an option to reduce their energy shortage risks. However, unanimous agreement cannot always be reached since each party plays on their own. In this paper, we integrate game theory and stochastic optimization methods to develop a coordination framework for wind power and conventional energy suppliers to reach a bilateral contract. With the proposed framework, the conventional power supplier can optimally allocate its energy capacity by participating in energy market and backing up the wind power supplier's energy shortage. The wind energy supplier can take advantage of the backup capacity built by conventional supplier to mitigate the wind power intermittency risk. Implementation results on real cases are provided to illustrate the effectiveness of the proposed framework.