How Can Energy Communities Provide Grid Services? A Dynamic Pricing Mechanism with Budget Balance, Individual Rationality, and Fair Allocation

TL;DR

This paper proposes a dynamic pricing mechanism for energy communities to provide grid services, ensuring budget balance, individual rationality, and fair benefit allocation through a bilevel optimization model.

Contribution

It introduces a novel bilevel optimization-based dynamic pricing mechanism enabling energy communities to offer grid services while maintaining key market properties.

Findings

Mechanism achieves budget balance for community managers.

Ensures individual rationality for prosumers.

Supports fair benefit allocation among prosumers.

Abstract

Following recent Danish legislation promoting energy communities, we explore how to enable these communities to provide grid services to distribution system operators. In particular, we focus on "capacity limitation services", where we propose a bilateral agreement in which an energy community is given reduced grid import tariffs by setting a cap to its consumption level in certain hours. This requires a coordination mechanism between the community manager and the prosumers within the community. We enable this coordination by developing a bilevel optimization model to be solved by the community manager, aiming to set dynamic, i.e., time- and prosumer-differentiated, prices. This coordination mechanism enabled by dynamic pricing ensures desirable market properties including budget balance for the community manager and individual rationality for prosumers, while encouraging (but not guaranteeing) a fair allocation of collected benefits among prosumers.