Net-Zero Settlement in Distribution Markets
For distribution market operators, this work provides a theoretical foundation for fair and efficient pricing that aligns distribution and transmission markets.
This paper proposes a penalty-based pricing mechanism for distribution markets and derives a closed-form relationship between transmission and distribution locational marginal prices, showing that settlement profit can be zeroed out under this mechanism.
Introduction of market mechanisms in distribution systems is currently subject to extensive studies. One of the challenges facing Distribution Market Operators (DMOs) is to implement a fair and economically efficient pricing mechanism that can incentivize consumers to positively contribute to grid operations and to improve economic performance of the distribution system. This paper studies a penalty-based pricing mechanism in distribution markets and further investigates the interrelationship between the locational marginal prices (LMPs) at transmission and distribution levels. As a result, a closed-form relationship between these LMPs is derived. The possibility of zeroing out the settlement profit is further investigated under the proposed pricing mechanism.