Modeling the Strategic Behavior of a Distribution Company in Wholesale Energy and Reserve Markets

The decision making framework in power systems has changed due to presence of distributed energy resources (DERs). These resources are installed in distribution networks to meet demand locally. Therefore, distribution companies (Discos) are able to supply energy through these resources to meet their demand at a minimum operation cost. In this framework, the Disco will change its role in the wholesale energy market from price taker to price maker. DERs can provide reserve in their normal operation; this facilitates the provision of reserves by the Disco in the wholesale reserve market. Therefore, in this paper, the strategic behavior of a Disco in wholesale energy and reserve markets is modeled as a bi-level optimization problem. In the proposed model, the operation problem of the Disco and the independent system operator are modeled in the tipper- and lower-level problems, respectively. Karush-Kuhn-Tucker conditions and duality theory are used to transform the proposed nonlinear hi-level problem to a linear single level one. Numerical studies show the effectiveness of the proposed model and its solution methodology.