Optimization-based modelling and game-theoretic framework for techno-economic analysis of demand-side flexibility: a real case study

TL;DR

This paper introduces a two-step framework combining optimization and game theory to analyze demand-side flexibility in distribution networks, considering technical, economic, and strategic factors through a real case study.

Contribution

It presents a novel integrated framework that models flexible asset offers and strategic bidding, improving accuracy in techno-economic analysis of demand-side flexibility.

Findings

Discriminatory pricing markets are more susceptible to manipulation.

Uniform pricing pay-as-cleared auctions reduce manipulation opportunities.

The framework effectively captures strategic behavior and technical constraints.

Abstract

This paper proposes a two-step framework for techno-economic analysis of a demand-side flexibility service in distribution networks. Step one applies optimization-based modelling to propose a generic problem formulation which determines the offer curve, in terms of available flexible capacity and its marginal cost, for flexible distribution-connected assets. These offer curves form an input to the second step, which uses a multi-agent iterative game framework to determine the benefits of demand-side flexibility for the Distribution System Operator (DSO) and the service providers. The combined two-step framework simultaneously accounts for the objectives of each flexibility provider, technical constraints of flexible assets, customer preferences, market clearing mechanisms, and strategic bidding by service providers, omission of any of which can lead to erroneous results. The proposed two-step framework has been applied to a real case study in the North East of England to examine four market mechanisms and three bidding strategies. The results showed that among all considered market mechanisms, flexibility markets that operate under discriminatory pricing, such as pay-as-bid and Dutch reverse auctions, are prone to manipulations, especially in the lack of competition. In contrast, uniform pricing pay-as-cleared auction provides limited opportunities for manipulation even when competition is low.