Cooperatives of distributed energy resources for efficient virtual power plants

The creation of Virtual Power Plants (VPPs) has been suggested in recent years as the means for achieving the cost-efficient integration of the many distributed energy resources (DERs) that are starting to emerge in the electricity network. In this work, we contribute to the development of VPPs by offering a game-theoretic perspective to the problem. Specifically, we design cooperatives (or "cooperative VPPs"---CVPPs) of rational autonomous DER-agents representing small-to-medium size renewable electricity producers, which coalesce to profitably sell their energy to the electricity grid. By so doing, we help to counter the fact that individual DERs are often excluded from the wholesale energy market due to their perceived inefficiency and unreliability. We discuss the issues surrounding the emergence of such cooperatives, and propose a pricing mechanism with certain desirable properties. Specifically, our mechanism guarantees that CVPPs have the incentive to truthfully report to the grid accurate estimates of their electricity production, and that larger rather than smaller CVPPs form; this promotes CVPP efficiency and reliability. In addition, we propose a scheme to allocate payments within the cooperative, and show that, given this scheme and the pricing mechanism, the allocation is in the core and, as such, no subset of members has a financial incentive to break away from the CVPP. Moreover, we develop an analytical tool for quantifying the uncertainty about DER production estimates, and distinguishing among different types of errors regarding such estimates. We then utilize this tool to devise protocols to manage CVPP membership. Finally, we demonstrate these ideas through a simulation that uses real-world data.