Comparison of market designs ensuring network integrity in low voltage distribution systems with high DER penetration

Abstract

This study delves into the interplay of residential electricity customers in low voltage distribution systems (LVDS) with market designs that manage local grid constraints. Within this context, residential electricity customers are self-interested agents, exposed to real-time pricing, that can invest in distributed energy resources (DER) and participate in wholesale energy as well as ancillary service market. The study specifically evaluates the trade-off between market design complexity and economic efficiency by examining market designs that employ Static Limits (SLs), Dynamic Operating Envelopes (DOEs), and Distribution Locational Marginal Pricing (DLMP) to ensure network integrity. Using a long-run equilibrium problem the study comprises both operational and investment perspective, considering feedbacks between distribution and higher voltage levels. The analysis reveals three key insights. Firstly, simpler market designs, namely SL-based and DOE-based designs, can approximate the economic efficiency of DLMP-based design, contingent on the network's characteristics. Effective in networks comprised of shorter feeders and larger consumers, the efficacy of simpler designs in approximating DLMP-based design diminishes in networks comprising longer feeders and numerous small consumers. Secondly, consumer preferences play a crucial role in DOE-based design, with consumers having a high willingness-to-pay (WTP) for grid capacity influencing economic efficiency. Thirdly, despite differences in distribution, energy, and DER investment costs, for the majority of consumers, total costs remain comparable across the three designs.