# 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.

## Key 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.

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Source: https://tomesphere.com/paper/1702.07030