A Hierarchical Electricity Market Structure for the Smart Grid Paradigm

This paper proposed a hierarchical structure for the electricity market to facilitate the coordination of energy markets in distribution and transmission networks. The proposed market structure enables the integration of microgrids, which provide energy and ancillary services in distribution networks. In the proposed hierarchical structure, microgrids participate in the energy market at the distribution networks settled by the distribution network operator (DNO), and load aggregators (LAs) interact with microgrids and generation companies (GENCOs) to import/export energy to/from the distribution network electricity markets from/to the wholesale electricity market. The proposed approach addressed the synergy of energy markets by introducing dynamic game with complete information for GENCOs, microgrids, and LAs. The proposed hierarchical competition is composed of bi-level optimization problems in which the respective upper-level problems maximize the individual market participants’ payoff, and the lower-level problems represent the market settlement accomplished by the DNO or the independent system operator. The bi-level problems are solved by developing sensitivity functions for market participants’ payoff with respect to their bidding strategies. A case study is employed to illustrate the effectiveness of the proposed approach.