Designing Decentralized Markets for Distribution System Flexibility

This paper introduces a decentralized market design, which allows a distribution system operator to manage local demand constraints by obtaining flexibility from competing aggregators, which must in-turn incentivize prosumers to provide this flexibility. The novel networked market structure accounts for distribution system operator-to-aggregator and aggregator-to-prosumer ICT infrastructure and contractual arrangements, which may limit which participants can negotiate transactions with one another. The proposed flexibility market is opt-in for prosumers, which continue to obtain energy within the existing retail electricity market. At the same time, it is underpinned by bilateral energy transactions, and could be integrated into future peer-to-peer electricity markets. Through the market, the distribution system operator, aggregators, and prosumers reach agreement on a stable outcome-a set of individually beneficial transactions no group wishes to mutually deviate from. Market outcomes also satisfy Pareto efficiency, meaning that it is not possible to make a participant better off, without making another worse off.