Impact Analysis of Price Cap on Bidding Strategies of VPP Considering Imbalance Penalty Structures
Virtual power plants (VPPs) enable the efficient participation of distributed renewable energy resources in electricity markets by aggregating them. However, the profitability of VPPs is challenged by market volatility and regulatory constraints, such as price caps and imbalance penalties. This stud...
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MDPI AG
2025-07-01
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| Series: | Energies |
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| Online Access: | https://www.mdpi.com/1996-1073/18/15/3927 |
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| author | Youngkook Song Yongtae Yoon Younggyu Jin |
| author_facet | Youngkook Song Yongtae Yoon Younggyu Jin |
| author_sort | Youngkook Song |
| collection | DOAJ |
| description | Virtual power plants (VPPs) enable the efficient participation of distributed renewable energy resources in electricity markets by aggregating them. However, the profitability of VPPs is challenged by market volatility and regulatory constraints, such as price caps and imbalance penalties. This study examines the joint impact of varying price cap levels and imbalance penalty structures on the bidding strategies and revenues of VPPs. A stochastic optimization model was developed, where a three-stage scenario tree was utilized to capture the uncertainty in electricity prices and renewable generation output. Simulations were performed under various market conditions using real-world price and generation data from the Korean electricity market. The analysis reveals that higher price cap coefficients lead to greater revenue and more segmented bidding strategies, especially under asymmetric penalty structures. Segment-wise analysis of bid price–quantity pairs shows that over-bidding is preferred under upward-only penalty schemes, while under-bidding is preferred under downward-only ones. Notably, revenue improvement tapers off beyond a price cap coefficient of 0.8, which indicates that there exists an optimal threshold for regulatory design. The findings of this study suggest the need for coordination between price caps and imbalance penalties to maintain market efficiency while supporting renewable energy integration. The proposed framework also offers practical insights for market operators and policymakers seeking to balance profitability, adaptability, and stability in VPP-integrated electricity markets. |
| format | Article |
| id | doaj-art-29a332f8cc3e4262a2c5687f2c6e5852 |
| institution | DOAJ |
| issn | 1996-1073 |
| language | English |
| publishDate | 2025-07-01 |
| publisher | MDPI AG |
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| series | Energies |
| spelling | doaj-art-29a332f8cc3e4262a2c5687f2c6e58522025-08-20T03:04:42ZengMDPI AGEnergies1996-10732025-07-011815392710.3390/en18153927Impact Analysis of Price Cap on Bidding Strategies of VPP Considering Imbalance Penalty StructuresYoungkook Song0Yongtae Yoon1Younggyu Jin2Department of Electrical and Computer Engineering, Seoul National University, Seoul 08826, Republic of KoreaDepartment of Electrical and Computer Engineering, Seoul National University, Seoul 08826, Republic of KoreaPower System Economics Laboratory, Department of Electrical Engineering, Jeju National University, 102 Jejudaehak-ro, Jeju 62343, Republic of KoreaVirtual power plants (VPPs) enable the efficient participation of distributed renewable energy resources in electricity markets by aggregating them. However, the profitability of VPPs is challenged by market volatility and regulatory constraints, such as price caps and imbalance penalties. This study examines the joint impact of varying price cap levels and imbalance penalty structures on the bidding strategies and revenues of VPPs. A stochastic optimization model was developed, where a three-stage scenario tree was utilized to capture the uncertainty in electricity prices and renewable generation output. Simulations were performed under various market conditions using real-world price and generation data from the Korean electricity market. The analysis reveals that higher price cap coefficients lead to greater revenue and more segmented bidding strategies, especially under asymmetric penalty structures. Segment-wise analysis of bid price–quantity pairs shows that over-bidding is preferred under upward-only penalty schemes, while under-bidding is preferred under downward-only ones. Notably, revenue improvement tapers off beyond a price cap coefficient of 0.8, which indicates that there exists an optimal threshold for regulatory design. The findings of this study suggest the need for coordination between price caps and imbalance penalties to maintain market efficiency while supporting renewable energy integration. The proposed framework also offers practical insights for market operators and policymakers seeking to balance profitability, adaptability, and stability in VPP-integrated electricity markets.https://www.mdpi.com/1996-1073/18/15/3927electricity marketvirtual power plantbidding strategyprice capimbalance penalty |
| spellingShingle | Youngkook Song Yongtae Yoon Younggyu Jin Impact Analysis of Price Cap on Bidding Strategies of VPP Considering Imbalance Penalty Structures Energies electricity market virtual power plant bidding strategy price cap imbalance penalty |
| title | Impact Analysis of Price Cap on Bidding Strategies of VPP Considering Imbalance Penalty Structures |
| title_full | Impact Analysis of Price Cap on Bidding Strategies of VPP Considering Imbalance Penalty Structures |
| title_fullStr | Impact Analysis of Price Cap on Bidding Strategies of VPP Considering Imbalance Penalty Structures |
| title_full_unstemmed | Impact Analysis of Price Cap on Bidding Strategies of VPP Considering Imbalance Penalty Structures |
| title_short | Impact Analysis of Price Cap on Bidding Strategies of VPP Considering Imbalance Penalty Structures |
| title_sort | impact analysis of price cap on bidding strategies of vpp considering imbalance penalty structures |
| topic | electricity market virtual power plant bidding strategy price cap imbalance penalty |
| url | https://www.mdpi.com/1996-1073/18/15/3927 |
| work_keys_str_mv | AT youngkooksong impactanalysisofpricecaponbiddingstrategiesofvppconsideringimbalancepenaltystructures AT yongtaeyoon impactanalysisofpricecaponbiddingstrategiesofvppconsideringimbalancepenaltystructures AT younggyujin impactanalysisofpricecaponbiddingstrategiesofvppconsideringimbalancepenaltystructures |