Fair Aggregation in Virtual Power Plants

TL;DR

This paper proposes a fairness-aware pricing framework for virtual power plants, analyzing how different fairness notions impact system performance and consumer welfare in energy markets.

Contribution

It introduces a novel framework that incorporates energy, price, and utility fairness into VPP pricing, revealing their effects on system and consumer outcomes.

Findings

Profit-only pricing disadvantages less flexible consumers.

Energy fairness can improve or worsen performance depending on fairness level.

Price fairness does not benefit less flexible consumers, even with reduced price disparities.

Abstract

A virtual power plant (VPP) is operated by an aggregator that acts as a market intermediary, aggregating consumers to participate in wholesale power markets. By setting incentive prices, the aggregator induces consumers to sell energy and profits by providing this aggregated energy to the market. This supply is enabled by consumers' flexibility to adjust electricity consumption in response to market conditions. However, heterogeneity in flexibility means that profit-maximizing VPP pricing can create inequalities in participation and benefit allocation across consumers. In this paper, we develop a fairness-aware pricing framework to analyze how different fairness notions reshape system performance, measured by consumer Nash welfare, total consumer utility, and social welfare. We consider three fairness criteria: energy fairness, which ensures equitable energy provision; price fairness, which ensures similar incentive prices; and utility fairness, which ensures comparable levels of consumer utility. We model the aggregator-consumer interaction as a Stackelberg game and derive consumers' optimal responses to incentive prices. Using a stylized model, we show that profit-only pricing systematically disadvantages less flexible consumers. We further show that energy fairness can either improve or worsen all performance measures, and gains across most measures arise only at moderate fairness levels. Surprisingly, price fairness never benefits less flexible consumers, even when it reduces price disparities. By contrast, utility fairness protects less flexible consumers without benefiting more flexible ones. We validate our findings using data from an experiment in Norway under a tiered pricing scheme. Our results provide regulators and VPP operators with a systematic map linking fairness definitions and enforcement levels to operational and welfare outcomes.