An Evolutionary Game Model of Market Participants and Government in Carbon Trading Markets with Virtual Power Plant Strategies

Abstract

The utilization of conventional energy sources commonly leads to heightened energy consumption and the generation of specific forms of environmental pollution. As an innovative power management and dispatch system, virtual power plants (VPPs) have the potential to significantly enhance the flexibility and stability of power systems, while supporting carbon reduction targets by integrating distributed energy resources (DERs), energy management systems (EMSs), and energy storage systems (ESSs), which have attracted much attention in the power industry in recent years. Consequently, it can effectively address the variability and management challenges introduced by renewable energy. Furthermore, optimizing power market dispatch and user-side power management plays a pivotal role in promoting the transition of the energy industry towards sustainable development. The current study highlights the unresolved issue of strategic decision-making among market participants, such as energy companies, generation companies, and power distribution companies, despite the potentially significant benefits of VPPs. These entities must carefully evaluate the costs and benefits associated with adopting a VPP. Additionally, governments face the complex task of assessing the feasibility and effectiveness of providing subsidies to incentivize VPP adoption. Previous research has not adequately explored the long-term evolution of these decisions in a dynamic market environment, leading to a lack of adequate understanding of optimal strategies for market participants and regulators. This paper addresses this critical research gap by introducing an innovative bilateral evolutionary game model that integrates VPP and carbon trading markets. By utilizing the model, simulation experiments are carried out to compare different strategic decisions and analyze the stability and long-term evolution of these strategies. Research findings indicate that the adoption of VPP technology by market participants, in conjunction with government policies, results in an average 90% increase in market participants’ earnings, while government revenues see a 35% rise. This approach provides an alternative method for understanding the dynamic interactions between market participants and government policy, offering both theoretical and practical insights. The findings significantly contribute to the literature by proposing a robust framework for integrating VPPs into electricity markets, while offering valuable guidance to policymakers and market participants in developing effective strategies to support the sustainable energy transition. The application of this model has not only enhanced the understanding of market dynamics in theory, but also provided quantitative support for strategic decisions under different market conditions in practice.