A Risk-Based Decision Framework for the Distribution Company in Mutual Interaction With the Wholesale Day-Ahead Market and Microgrids

One of the emergent prospects for active distribution networks (<italic>DN</italic>) is to establish new roles to the distribution company (<italic>DISCO</italic>). The <italic>DISCO</italic> can act as an aggregator of the resources existing in the <italic>DN</italic>, also when parts of the network are structured and managed as microgrids (<italic>MG</italic>s). The new roles of the <italic>DISCO</italic> may open the participation of the <italic>DISCO</italic> as a player trading energy in the wholesale markets, as well as in local energy markets. In this paper, the decision making aspects involving the <italic>DISCO</italic> are addressed by proposing a bilevel optimization approach in which the <italic>DISCO</italic> problem is modeled as the upper-level problem and the <italic>MG</italic>s problems and day-ahead wholesale market clearing process are modeled as the lower-level problems. To include the uncertainty of renewable energy sources, a risk-based two-stage stochastic problem is formulated, in which the <italic>DISCO</italic>'s risk aversion is modeled by using the conditional value at risk. The resulting nonlinear bilevel model is transformed into a linear single-level one by applying the Karush–Kuhn–Tucker conditions and the duality theory. The effectiveness of the model is shown in the application to the IEEE 33-bus <italic>DN</italic> connected to the IEEE RTS 24-bus power system.