A Comprehensive Process for Addressing Market Power in Decentralized ADN Electricity Markets

Abstract

Electric power systems have transformed globally, with distribution grids evolving into active distribution networks (ADNs), altering their characteristics and operations. Traditional centralized market structures have become inadequate for the complexities of the ADNs, leading to inefficiencies and challenges in reliable operation and energy pricing. ADN electricity markets offer a solution by leveraging smart grid features to integrate distributed energy resources (DERs), allowing non-utility entities, such as producers, consumers and prosumers, to participate directly, enhancing market efficiency, reducing monopoly power, and limiting utility control over prices. However, with the increasing penetration of DERs, there is a growing risk of market concentration and manipulation by entities owning large shares of DERs in ADN electricity markets. This poses a potential threat to market fairness, as some participants may exploit market power, leading to an uneven playing field, reducing the integrity and efficiency of ADN electricity markets. From this standpoint, this thesis investigates and adapts the concept of market power within ADN electricity markets, considering the unique characteristics of the market and the system. The investigation is structured around six central questions: (1) Can non-utility entities exercise market power in ADN electricity markets? (2) Is there a comprehensive framework for accurately monitoring, evaluating, and mitigating market power in decentralized ADN markets? (3) If such a framework exists, can it manage the complexity of monitoring the large number of ADN market participants? (4) If market power manipulation exists, are current investigations adequate, considering the decentralized market structure, the physical characteristics of the system, DER operational constraints, and the interplay between active and reactive power markets? (5) What types of decentralized market structures and frameworks—such as fully decentralized, community-based, or network-based peer-to-peer (P2P)—are appropriate for addressing market power in ADN electricity markets? (6) Are traditional market power mitigation methods applicable and effective in the context of ADN electricity markets considering the decentralized nature of the ADN and the dispersed DERs?. The primary objective of this thesis is to develop a fair and decentralized energy trading platform that limits monopoly power and mitigates market power abuse in ADN electricity markets. To achieve this goal, the thesis proposes an innovative comprehensive process for monitoring, evaluating, and mitigating market power, specially designed for the decentralized structure of ADNs and their market frameworks. This process considers the shifts in network configuration as well as the physical and operational characteristics of ADNs and their components. The process begins by monitoring market power of dominant market participants through introducing the zoning concept. These operational zones narrow down the number of market participants within each zone, addressing the challenge of monitoring a large number of market participants with widely distributed DERs and improving the identification and control of potential market power exercisers, thus minimizing their potential market power. These operational zones serve as decentralized interfaces between the zonal market participants and their corresponding zonal market operators, establishing a decentralized platform for energy trading. The second stage of the process focuses on evaluating market power through investigating and analyzing the strategic offering behavior of the potential market power exercisers identified in stage one. This analysis is conducted within the framework of a community-based P2P decentralized ADN electricity market, considering the physical and operational characteristics of both the system and DERs, along with the coupled active and reactive power markets. A comparative evaluation of market outcomes under competitive and strategic conditions is performed to identify strategic manipulators. In this context, the study also examines the applicability and effectiveness of conventional market power mitigation techniques used for the centralized market and assesses their impact on the strategic offering behavior of identified manipulators. While some traditional market power mitigation techniques may demonstrate efficiency, a new approach is necessary to address the unique decentralization characteristic of ADN electricity markets. A novel market power mitigation technique is proposed in the third stage of the process, targeting the root cause of market power: market concentration. This approach introduces an innovative market zoning concept, dynamically partitioning the system into "Market-Zones" to reduce market concentration while adapting to different system operational conditions, considering the uncertainties in system demand and generation, thereby aligning with the decentralized nature of ADNs and their markets. The proposed innovative zoning approach offers a robust solution for mitigating market power in decentralized ADN electricity markets. Within these Market-Zones, each player can actively engage and participate in the market and obtain the benefit without being overtaken by entities with large market shares. Consequently, the market power of the dominant players is subsided and diluted by utilizing the proposed Market-Zones, establishing a fair energy trading platform.