Prospect Theory Facilitated Prosumer Decision-making in Local Energy Trading

Incentivized by low-carbon policies, distributed energy resources (DERs) thrive in power systems. Consumers equipped with generation capability enabled by DERs become prosumers. In this new environment, local energy trading becomes an essential arrangement for enabling DERs penetration. This paper proposes a novel non-cooperative trading model for prosumers to realize the effective utilization of DERs by participating in local energy trading. The local energy market is structured by following the wholesale market model. To solve the uncertainty issue, renewable generation is modelled based on CVaR (conditional value at risk). Under the framework, prosumer trading behaviours are formulated by prospect theory to reflect personal diminishing sensitivity in their decision-making. Instead of assuming a completely rational character setting, the model is more practical to reflect different personal perceptions of gain and loss in local trading. Based on this model, the prospect theory-based algorithm is developed to obtain the optimal pricing strategies for prosumers to maximize profits in local energy trading. Four case studies are provided to illustrate prosumers’ trading behaviours and quantify profits, which prove the effectiveness of the proposed method in guiding the trading behaviour of prosumers to maximise profits.