A novel framework for the day-ahead market clearing process featuring the participation of distribution system operators and a hybrid pricing mechanism

The electricity market liberalization propelled by the increased operational flexibility observed in distribution systems urges the development of mathematical models for competitive electricity markets accounting for the participation of distribution systems operators. Most existing approaches model the interaction between the agents and the market as a bilevel programming problem, wherein the market is characterized at the lower level. Hence, the upper-level agent’s objective function is favored over minimizing the costs of supplying the system’s demand. In this paper, a new bilevel formulation is proposed. In the upper level, the market operator determines the optimal energy price that ensures the demand supply and maximizes the overall social welfare. In the lower level, the generation companies and distribution systems operators determine the amount of energy injected/extracted into/from the transmission system to maximize profits/minimize operational costs. A new pricing method is proposed in this paper as an alternative to the transmission system’s dual variables, which are inaccessible under the proposed framework. The resulting nonlinear mixed-integer bilevel programming formulation is transformed into an equivalent single-level mixed-integer linear program. Numerical results illustrate the proposed approach’s effectiveness in maintaining the minimum operational costs while distributing the payoff amongst the agents.