Contract Design Problem Sample Clauses

Contract Design Problem. Through an insurance contract, the storage unit commits to maintaining some energy reserve available to be used in case of renewable shortage. The contract is signed ex-ante, while in real-time, the storage is called upon to supply this reserve in case of renewable shortage. If the shortage is less than the reserve established in the contract, the storage unit will supply only the amount needed to cover the shortfall; if the reserve is not enough to cover the shortage completely, the storage supplies the entire reserve and the renewable producer is responsible for paying the penalty corresponding to the shortage remaining. An insurance contract C is defined as the pair {π, G} that establishes the price per unit π = [π0, ..., πN−1]T ∈ RN and amount of energy G = [G0, ..., GN−1]T ∈ RN to be set aside as a reserve by the storage at each time k. We say that a contract C is individual rational if no participant is worse off by signing the con- tract, i.e. their expected profit does not decrease in the presence of the contract; is feasible if it induces a storage policy (u+, u−) and is individual rational. The renewable producer tries to maximize his own expected profit when deciding how much to bid in the day-ahead market and how much reserve to purchase through an insurance contract with the storage unit. These two decisions are made sequentially, as the contract is signed ex-ante. Then, in the day-ahead market, the renewable producer solves