Towards Distributed Energy Markets: Accurate and Intuitive DLMP Decomposition

Distributed energy markets (DEM) have emerged to efficiently integrate distributed energy resources (DER) in power systems, applying the principles from wholesale energy markets and generating distribution locational marginal prices (DLMPs). In this paper we introduce a novel DLMP decomposition that provides fundamental insights into the relationship between DLMPs and wholesale market prices, active and reactive power injections, thermal and voltage constraints, and losses. The DLMP decomposition is based on an exact second order cone optimal power flow (SOC-OPF) using an iterative algorithm to accurately and efficiently compute DLMP, including instances with negative prices, when generally SOC-OPF is not exact. The salient features of the proposed DLMP decomposition are demonstrated in different DEM applications using a 2-bus canonical example and a 34-bus medium voltage test network. By revealing the underlying drivers of electricity prices at distribution level, the proposed DLMP decomposition initiates crucial discussions on DEM, setting the foundations for further DEM developments.