Mechanism Design for Fair and Efficient DSO Flexibility Markets

The proliferation of distributed energy assets necessitates the provision of flexibility to efficiently operate modern distribution systems. In this article, we propose a flexibility market through which the DSO may acquire flexibility services from asset aggregators in order to maintain network voltages and currents within safe limits. A max-min fair formulation is proposed for the allocation of flexibility. Since the DSO is not aware of each aggregator’s local flexibility costs, we show that strategic misreporting can lead to severe loss of efficiency. Using mechanism design theory, we provide a mechanism that makes it a payoff-maximizing strategy for each aggregator to make truthful bids to the flexibility market. While typical truthful mechanisms only work when the objective is the maximization of Social Welfare, the proposed mechanism lets the DSO achieve incentive compatibility and optimality for the max-min fairness objective.