How to Use Reinforcement Learning to Facilitate Future Electricity Market Design? Part 2: Method and Applications

Abstract: This two-part paper develops a paradigmatic theory and detailed methods of the joint electricity market design using reinforcement-learning (RL)-based simulation. In Part 2, this theory is further demonstrated by elaborating detailed methods of designing an electricity spot market (ESM), together with a reserved capacity product (RC) in the ancillary service market (ASM) and a virtual bidding (VB) product in the financial market (FM). Following the theory proposed in Part 1, firstly, market design options in the joint market are specified. Then, the Markov game model is developed, in which we show how to incorporate market design options and uncertain risks in model formulation. A multi-agent policy proximal optimization (MAPPO) algorithm is elaborated, as a practical implementation of the generalized market simulation method developed in Part 1. Finally, the case study demonstrates how to pick the best market design options by using some of the market operation performance indicators proposed in Part 1, based on the simulation results generated by implementing the MAPPO algorithm. The impacts of different market design options on market participants' bidding strategy preference are also discussed.