Equilibrium models to analyse the impact of different coordination schemes between TSO and DSOs on market power in sequentially-cleared energy and ancillary services markets under load and renewable generation uncertainty

Abstract: The current massive installation of distributed resources in electricity distribution systems is transforming these systems into active dispatching subjects. At the same time, the need to compensate for the intermittent generation of an increasing amount of renewable sources creates the need to acquire more ancillary services. Flexible resources in the distribution system could provide these services not only within the perimeter of the distribution network to which they are connected but also for the benefit of the transmission system. However, this requires Transmission System Operators (TSOs) and Distribution System Operators (DSOs) to coordinate their dispatching actions effectively. One critical aspect of this coordination is establishing a market architecture that limits market power. This paper presents an innovative game-theoretic approach to compare different TSO-DSO coordination models for acquiring ancillary services from distribution resources. Several schemes are considered: some with coordinated market management by TSOs and DSOs, others with sequential or independent local markets. For each scheme, the dispatching problem is formulated as a two-stage stochastic sequential game, where the first stage is the day-ahead market and the second stage is the balancing market. Nash equilibrium solutions are obtained by iteratively solving the profit maximization problem of each market player. Numerical tests on a CIGRE benchmark network show that coordination schemes enabling distribution resources to provide ancillary services to the transmission system can significantly increase system costs when congestion occurs in the transmission network.