Net-Zero Settlement in Distribution Markets

TL;DR

This paper proposes a penalty-based pricing mechanism for distribution markets, deriving a closed-form relationship between transmission and distribution locational marginal prices to promote fair, efficient settlements and zero-profit scenarios.

Contribution

It introduces a novel penalty-based pricing scheme and analytically links transmission and distribution LMPs, addressing economic efficiency and profit neutrality in distribution markets.

Findings

Derived a closed-form relationship between transmission and distribution LMPs.

Analyzed conditions for zeroing out settlement profit.

Proposed a penalty-based pricing mechanism for distribution markets.

Abstract

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.