A bi-level approach for optimal contract pricing of independent dispatchable DG units in distribution networks

Summary Distributed generation (DG) units are increasingly installed in the power systems. Distribution companies (DisCo) can opt to purchase the electricity from DG in an energy purchase contract to supply the customer demand and reduce energy loss. This paper proposes a framework for optimal contract pricing of independent dispatchable DG units considering competition among them. While DG units tend to increase their profit from the energy purchase contract, DisCo minimizes the demand supply cost. Multi-leader follower game theory concept is used to analyze the situation in which competing DG units offer the energy price to DisCo and DisCo determines the DG generation. A bi-level approach is used to formulate the competition in which each DG problem is the upper-level problem and the DisCo problem is considered as the lower-level one. Combining the optimality conditions of all upper-level problems with the lower-level problem results in a multi-DG equilibrium problem formulated as an equilibrium problem with equilibrium constraints. Using a nonlinear approach, the equilibrium problem with equilibrium constraints problem is reformulated as a single nonlinear optimization model, which is simultaneously solved for all independent DG units. The proposed framework was applied to the modified IEEE 34-bus distribution test system. Performance and robustness of the proposed framework in determining econo-technically fair DG contract price has been demonstrated through a series of analyses. Copyright © 2016 John Wiley & Sons, Ltd.