Optimal Energy Procurement from a Strategic Seller with Private Renewable and Conventional Generation

Abstract: We consider a mechanism design problem for energy procurement, when there is one buyer and one seller, and the buyer is the mechanism designer. The seller can generate energy from conventional (deterministic) and renewable (random) plants, and has multi-dimensional private information which determines her production cost. The objective is to maximize the buyer's utility under the constraint that the seller voluntarily participates in the energy procurement process. We show that the optimal mechanism is a menu of contracts (nonlinear pricing) that the buyer offers to the seller, and the seller chooses one based on her private information.