This chapter describes an incentive-based market that integrates the economic layer and the physical layer to guarantee high-quality physical ancillary services in dynamic power networks. Toward the full liberalization of the electricity markets, it is indispensable to develop a socially optimal regulation market with a high-speed market-clearing mechanism while preventing maliciously strategic biddings of market participants called agents. To realize the markets, the utility functioning as a system operator prepares an appropriate incentive mechanism to elicit the agents’ private information. We refer to this real-time incentive-enabled market as an incentivizing market. After illustrating the issues of the agents’ strategic biddings without incentive mechanisms, we mainly propose incentivizing market mechanisms for moral hazard problems and adverse selection problems in dynamic power networks, respectively. We also discuss features, possibilities, and limitations of our proposed mechanisms through simulations for linear quadratic Gaussian (LQG) power networks.
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