Navigating uncertain generation: The impact of regulation on distributed photovoltaic green electricity trading market participation

Distributed photovoltaic systems play increasingly important roles in the power mix. China is actively promoting the integration of aggregated photovoltaics into the green electricity trading market. However, challenges related to undersupply and oversupply, stemming from uncertain generation, hinder market integration. To address these issues, China has implemented alternative regulatory mechanisms designed to guide generation schedules and mitigate forecasting deviations. It remains to be seen how these mechanisms will promote economic benefits and social welfare. This paper proposes a bi-level differential game model to investigate the effects of three mechanisms: fixed penalties, flexible penalties, and nearby consumption. The results show that: (i) Imposing or increasing undersupply penalties results in a strictly low renewable energy commitment, and distributed energy aggregation can mitigate this detrimental effect; (ii) Reducing the penalty intensity improves social welfare and a moderate fixed penalty helps to increase profits for generators; (iii) Generators can strategically increase their renewable energy commitment to manipulate the penalty under a market-based flexible penalty mechanism; (iv) Generators benefit from the resale of excess generation in a secondary market, but this practice may lead to a loss of social welfare when facing high levelized costs. In addition to cost reductions, a combination of punishment and nearby consumption can be applied to cope with generation uncertainty.