A Dynamic Framework for Electricity Markets

The current transformation towards a cyber-enabled power grid consists of two dominant features, one of which is a high penetration of distributed energy resources (DER) and the other is an increasing participation of demand response (DR), the concept of adjustable power consumption. As much of the DERs are renewable energy resources, their increased penetration introduces intermittencies and uncertainties, which encompass a large range of timescales. DR-compatible devices bring in new degrees of freedom that lead to decision-making over multiple timescales as well. Both of these features necessitate the need for revisiting the electricity market structure, its mechanisms and its overall coupling with the physical power grid. In this paper, we propose a dynamic framework for market mechanisms in the wholesale electricity market at fast timescales. In particular, we propose a dynamic market mechanism and a dynamic regulation market mechanism for the operation of a real-time market and a regulation market, respectively. Taking into account various physical constraints for generation, transmission and consumption, we design these mechanisms so that efficient market equilibrium can be realized. Performance metrics that reflect the social cost as well as physical costs of frequency regulation and area control errors are taken into account. Both market mechanisms are shown to be implementable and exhibit good performance through case studies on a modified IEEE 118-bus system and a three-area system where each of the areas is a modified IEEE 300-bus system.