Aggregation of Demand-Side Flexibility in Electricity Markets: Negative Impact Analysis and Mitigation Method

Aggregation of demand-side flexibility plays a crucial role in helping improve the system-wide performance of power grids. However, little considered is the potential negative impact of self-interested flexibility aggregators, who are being strategic for their own benefit at the cost of other market participants or even system-wide performance. This article aims to theoretically analyze this negative impact, as well as propose a corresponding mitigation method. Specifically, we consider a strategic aggregator that derives the optimal bidding strategy of the flexibility bounds (for cumulative energy and instantaneous power consumption) and trades electricity in a pool. A multi-period bi-level program with a DC network setup is considered. The upper-level problem represents the aggregator’s cost minimization, and the lower-level problem represents the market clearing process. Based on this bi-level formulation, our theoretical analysis shows that the potential negative impact of the strategic behavior on the system generation cost, the payment of the fixed loads, and the payment of the non-strategic aggregators depends on the bus locations of both the strategic and non-strategic aggregators. We propose to additionally charge the strategic aggregator for the newly introduced congestion so as to avoid system performance degradation. The analytical results are validated via simulations.