A two-stage market model for microgrid power transactions via aggregators

In this paper, we propose a market model where microgrids sell their surplus power to a utility via aggregators. This is a scalable model where a utility does not directly interact with a large number of microgrids. Thus, aggregators collect power from microgrids and resell it to the utility. From the microgrids' perspective, aggregators are buyers. From the utility's perspective, aggregators are sellers. In this context, based on the two-stage Stackelberg game, we show how to achieve efficient market equilibrium using the tatonnement process and supply function bidding. We also show that the participation of aggregators may significantly affect the market depending on the supply elasticity of microgrids, which in turn depends on the cost structure of microgrids. For example, when the cost function of microgrids is roughly linear, the aggregators may not make a profit. However, if the cost function of microgrids has a higher order term, aggregators may accumulate a large profit, which potentially raises the issue of the regulator's role in the market. (c) 2011 Alcatel-Lucent.