Translation-Symmetric Market: Enabling Incentive Compatibility For DER Aggregation

TL;DR

This paper introduces the translation-symmetric market (TSM) framework, ensuring incentive compatibility and transparent valuation in virtual power plant (VPP) operations for distributed energy resources (DERs).

Contribution

It proposes a unified, hierarchical market model that maintains incentive compatibility across all levels, addressing profit allocation challenges in DER aggregation.

Findings

TSM ensures incentive compatibility propagates across hierarchical levels.

TSM maintains consistent service prices across levels.

Case studies validate TSM's effectiveness in DER profit allocation.

Abstract

Virtual power plants (VPPs) are indispensable for coordinating the rapidly growing portfolios of distributed energy resources (DERs) and enabling them to deliver multiple services into higher-level electricity markets. However, the profit allocation procedures that govern VPP participants become increasingly challenging to keep incentive-compatible due to the enlarged DER market power within each VPP, compared to directly bidding into the wholesale market. In this paper, we formulate both the VPP's market participation and its internal operation and profit allocation as consistent market-clearing processes. Building on this unified view, we propose the concept of a translation-symmetric market (TSM) framework, in which market-clearing models maintain identical structural forms across all hierarchical levels. We prove that translation symmetry induces an inductive property: once incentive compatibility holds at one level, it propagates downward to the internal settlements between the VPP and its constituent DERs. TSM also preserves service prices across levels, ensuring competitive conditions and enabling transparent valuation of resource contributions. Theoretical analysis and case studies illustrate how TSM secures incentive-compatible profit allocation in aggregating DERs to provide multiple services.