Distribution and transmission coordinated dispatch under joint electricity and carbon day-ahead markets

Worldwide efforts to attain a more renewable-based energy matrix have led to the creation of carbon emission-related markets. Simultaneously, the increasing penetration, mostly of renewable-based sources, in distribution networks may allow distribution system operators (DSOs) to change their traditional participation in wholesale markets as passive buyers. Over the last few years, many authors have investigated and proposed optimization models for the strategic participation of DSOs in electricity markets. Nonetheless, proposals regarding the DSO as a strategic agent in both electricity and carbon-related markets are rare. In this paper, we propose a stochastic bilevel formulation to address this gap. The economic and operational constraints of each stakeholder are considered in the model. Additionally, the problem is written in a convex formulation for which finite convergence to optimality is guaranteed. The formulation was tested for a 14-node transmission system and a 34-node distribution system in which dispatchable and non-dispatchable energy sources, energy storage systems, and demand response units are installed. The results show the DSO's capacity to place strategic bids in both market environments to maximize its profit, which features intentionally taking financial losses in the carbon allowance market to maximize the overall profit due to the income maximization in the electricity market. Finally, an additional case study with a 123-node distribution system shows the proposed method's scalability.