A market mechanism for electric distribution networks

To encourage end-users to participate in the transformation of the power grid into a more distributed, adaptive and resilient one, an efficient electricity market, especially in distribution networks, plays an important role. However, the externalities associated with the power flow and network operating constraints constitute a significant barrier to form such markets.1 Traditionally, there is a central regulator to determine locational marginal prices in order to compensate the externalities. In this paper, we present a decentralized market mechanism for a radial distribution network which internalize the externalities within private decisions. The market mechanism defines trading rules that efficiently allocate the externalities to individual bilateral transactions in the network. Specifically, we focus on the external costs associated with voltage constraints and line losses. We show that a competitive market could be established for distribution services and electricity to achieve a social optimum within a power pool.