IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v156y2021ics0301421521002056.html
   My bibliography  Save this article

A local flexibility market mechanism with capacity limitation services

Author

Listed:
  • Heinrich, Carsten
  • Ziras, Charalampos
  • Jensen, Tue V.
  • Bindner, Henrik W.
  • Kazempour, Jalal

Abstract

Local flexibility markets have a substantial potential to unlock the flexibility of distributed energy resources in the distribution level. Capacity limitation services have been perceived as one of the most appealing products to be traded in these markets. This work argues why classical market-clearing and pricing mechanisms such as pay-as-bid, uniform pricing and Vickrey-Clarke-Groves (VCG) are not compatible with a market that trades capacity limitations. As a solution, we propose a local flexibility market mechanism which is built upon an adapted VCG-based auction. The mechanism achieves a trade-off among various desirable economic properties, including budget-balancedness, incentive-compatibility and stability. The suitability of the proposed mechanism is illustrated using a case study which is based on a real medium voltage feeder, located on the Danish island of Bornholm. Results show that aggregators and the distribution system operator benefit from the trade of capacity limitation services. We eventually conclude by providing a set of policy recommendations for the real-life operation of such a market.

Suggested Citation

  • Heinrich, Carsten & Ziras, Charalampos & Jensen, Tue V. & Bindner, Henrik W. & Kazempour, Jalal, 2021. "A local flexibility market mechanism with capacity limitation services," Energy Policy, Elsevier, vol. 156(C).
  • Handle: RePEc:eee:enepol:v:156:y:2021:i:c:s0301421521002056
    DOI: 10.1016/j.enpol.2021.112335
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421521002056
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.enpol.2021.112335?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Richard Engelbrecht-Wiggans & Charles M. Kahn, 1998. "Multi-unit auctions with uniform prices," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(2), pages 227-258.
    2. Sinan Küfeoğlu & Niyazi Gündüz & Hao Chen & Matti Lehtonen, 2018. "Shadow Pricing of Electric Power Interruptions for Distribution System Operators in Finland," Energies, MDPI, vol. 11(7), pages 1-14, July.
    3. Höckner, Jonas & Voswinkel, Simon & Weber, Christoph, 2020. "Market distortions in flexibility markets caused by renewable subsidies – The case for side payments," Energy Policy, Elsevier, vol. 137(C).
    4. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    5. Edward Clarke, 1971. "Multipart pricing of public goods," Public Choice, Springer, vol. 11(1), pages 17-33, September.
    6. Papaefthymiou, G. & Dragoon, Ken, 2016. "Towards 100% renewable energy systems: Uncapping power system flexibility," Energy Policy, Elsevier, vol. 92(C), pages 69-82.
    7. Ziras, Charalampos & Heinrich, Carsten & Bindner, Henrik W., 2021. "Why baselines are not suited for local flexibility markets," Renewable and Sustainable Energy Reviews, Elsevier, vol. 135(C).
    8. Vijay Krishna & Motty Perry, 1997. "Efficient Mechanism Design," Game Theory and Information 9703010, University Library of Munich, Germany, revised 28 Apr 1998.
    9. Mlecnik, Erwin & Parker, James & Ma, Zheng & Corchero, Cristina & Knotzer, Armin & Pernetti, Roberta, 2020. "Policy challenges for the development of energy flexibility services," Energy Policy, Elsevier, vol. 137(C).
    10. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    11. Hung-po Chao, 2011. "Demand response in wholesale electricity markets: the choice of customer baseline," Journal of Regulatory Economics, Springer, vol. 39(1), pages 68-88, February.
    12. Hadush, Samson Yemane & Meeus, Leonardo, 2018. "DSO-TSO cooperation issues and solutions for distribution grid congestion management," Energy Policy, Elsevier, vol. 120(C), pages 610-621.
    13. Ziras, Charalampos & Heinrich, Carsten & Pertl, Michael & Bindner, Henrik W., 2019. "Experimental flexibility identification of aggregated residential thermal loads using behind-the-meter data," Applied Energy, Elsevier, vol. 242(C), pages 1407-1421.
    14. Heinrich, Carsten & Ziras, Charalampos & Syrri, Angeliki L.A. & Bindner, Henrik W., 2020. "EcoGrid 2.0: A large-scale field trial of a local flexibility market," Applied Energy, Elsevier, vol. 261(C).
    15. Kubli, Merla & Loock, Moritz & Wüstenhagen, Rolf, 2018. "The flexible prosumer: Measuring the willingness to co-create distributed flexibility," Energy Policy, Elsevier, vol. 114(C), pages 540-548.
    16. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-631, July.
    17. Sinan Küfeoglu & Niyazi Gündüz & Hao Chen & Matti Lehtonen, 2018. "Shadow Pricing of Electric Power Interruptions for Distribution System Operators in Finland," Working Papers EPRG 1825, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Moshe Kelner & Zinoviy Landsman & Udi E. Makov, 2022. "Probabilistic Peak Demand Estimation Using Members of the Clayton Generalized Gamma Copula Family," Energies, MDPI, vol. 15(16), pages 1-15, August.
    2. Lind, Leandro & Chaves-Ávila, José Pablo & Valarezo, Orlando & Sanjab, Anibal & Olmos, Luis, 2024. "Baseline methods for distributed flexibility in power systems considering resource, market, and product characteristics," Utilities Policy, Elsevier, vol. 86(C).
    3. Hennig, Roman J. & de Vries, Laurens J. & Tindemans, Simon H., 2024. "Risk vs. restriction—An investigation of capacity-limitation based congestion management in electric distribution grids," Energy Policy, Elsevier, vol. 186(C).
    4. Hermann, Alexander & Jensen, Tue Vissing & Østergaard, Jacob & Kazempour, Jalal, 2022. "A complementarity model for electric power transmission-distribution coordination under uncertainty," European Journal of Operational Research, Elsevier, vol. 299(1), pages 313-329.
    5. Tong, Ziqiang & Mansouri, Seyed Amir & Huang, Shoujun & Rezaee Jordehi, Ahmad & Tostado-Véliz, Marcos, 2023. "The role of smart communities integrated with renewable energy resources, smart homes and electric vehicles in providing ancillary services: A tri-stage optimization mechanism," Applied Energy, Elsevier, vol. 351(C).
    6. Potenciano Menci, Sergio & Valarezo, Orlando, 2024. "Decoding design characteristics of local flexibility markets for congestion management with a multi-layered taxonomy," Applied Energy, Elsevier, vol. 357(C).
    7. Jadhav, Ashok M. & Abhyankar, Abhijit R., 2022. "Emergence of distribution system operator in the Indian power sector and possible way ahead," Energy Policy, Elsevier, vol. 160(C).
    8. Elias Carayannis & Pantelis Kostis & Hasan Dinçer & Serhat Yüksel, 2022. "Balanced-Scorecard-Based Evaluation of Knowledge-Oriented Competencies of Distributed Energy Investments," Energies, MDPI, vol. 15(21), pages 1-23, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. M. Yenmez, 2015. "Incentive compatible market design with applications," International Journal of Game Theory, Springer;Game Theory Society, vol. 44(3), pages 543-569, August.
    2. Jeong, Seungwon (Eugene) & Lee, Joosung, 2024. "The groupwise-pivotal referral auction: Core-selecting referral strategy-proof mechanism," Games and Economic Behavior, Elsevier, vol. 143(C), pages 191-203.
    3. repec:cte:werepe:we081207 is not listed on IDEAS
    4. Chaturvedi, Rakesh, 2023. "Cost of efficiency in trading perfect complements," Economics Letters, Elsevier, vol. 230(C).
    5. Ausubel, Lawerence M. & Cramton, Peter, 1998. "The optimality of being efficient : designing auctions," Policy Research Working Paper Series 1985, The World Bank.
    6. Tafreshian, Amirmahdi & Masoud, Neda, 2022. "A truthful subsidy scheme for a peer-to-peer ridesharing market with incomplete information," Transportation Research Part B: Methodological, Elsevier, vol. 162(C), pages 130-161.
    7. Song, Yangwei, 2018. "Efficient Implementation with Interdependent Valuations and Maxmin Agents," Rationality and Competition Discussion Paper Series 92, CRC TRR 190 Rationality and Competition.
    8. Kazumura, Tomoya & Mishra, Debasis & Serizawa, Shigehiro, 2020. "Mechanism design without quasilinearity," Theoretical Economics, Econometric Society, vol. 15(2), May.
    9. Philippe Jehiel & Laurent Lamy, 2018. "A Mechanism Design Approach to the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 735-760.
    10. Yoon, Kiho, 2008. "The participatory Vickrey-Clarke-Groves mechanism," Journal of Mathematical Economics, Elsevier, vol. 44(3-4), pages 324-336, February.
    11. Bierbrauer, Felix & Netzer, Nick, 2016. "Mechanism design and intentions," Journal of Economic Theory, Elsevier, vol. 163(C), pages 557-603.
    12. Dirk Engelmann & Veronika Grimm, 2009. "Bidding Behaviour in Multi-Unit Auctions - An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 119(537), pages 855-882, April.
    13. Steven J. Brams & Todd R. Kaplan & D. Marc Kilgour, 2015. "A Simple Bargaining Mechanism that Elicits Truthful Reservation Prices," Group Decision and Negotiation, Springer, vol. 24(3), pages 401-413, May.
    14. Matthias Lang, 2020. "Mechanism Design with Narratives," CESifo Working Paper Series 8502, CESifo.
    15. Ronald M Harstad, 2011. "Behavioral Efficiency I: Definition, Methodology and Demonstration," ISER Discussion Paper 0818, Institute of Social and Economic Research, Osaka University.
    16. Moldovanu, Benny & Ewerhart II, Christian, 2001. "The German UMTS Design: Insights From Multi-Object Auction Theory," Sonderforschungsbereich 504 Publications 02-05, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    17. John A. List & David Lucking-Reiley, 2002. "Bidding Behavior and Decision Costs in Field Experiments," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 611-619, October.
    18. Soumendu Sarkar, 2017. "Mechanism design for land acquisition," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(3), pages 783-812, August.
    19. Safronov, Mikhail, 2018. "Coalition-proof full efficient implementation," Journal of Economic Theory, Elsevier, vol. 177(C), pages 659-677.
    20. Tuomas Sandholm & Anton Likhodedov, 2015. "Automated Design of Revenue-Maximizing Combinatorial Auctions," Operations Research, INFORMS, vol. 63(5), pages 1000-1025, October.
    21. Esther Gal-Or & Anindya Ghose, 2005. "The Economic Incentives for Sharing Security Information," Information Systems Research, INFORMS, vol. 16(2), pages 186-208, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:156:y:2021:i:c:s0301421521002056. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.