Nash Mechanisms for Market Design Based on Distribution Locational Marginal Prices

Abstract

Being important information of both network conditions and energy trading, distribution locational marginal prices (DLMPs) are greatly useful for distribution network (DN) management. The goal of this paper is to develop a market mechanism that motivates price-making agents to trade active and reactive power at DLMPs. According to the optimal power flow problem based on second-order cone (SOC) relaxation, we first design the market rules that allow agents to strategically submit proposals of price and power generation/consumption. The market rules induce a noncooperative game between the DN operator and distributed generators. We prove that DLMP pricing can be implemented at any generalized Nash equilibrium (GNE) of the game. We also show that economic properties of strong budget balance, individual rationality, and system cost minimization can be achieved at any GNE. A decentralized algorithm is developed to reach a GNE of the game. Further, based on the convex-concave procedure, an extension of the market mechanism is proposed to cope with the situations that SOC relaxation is inexact. In simulation, the proposed market mechanism is compared with other game-theoretic models, and the economic properties are verified.