Integration of Retail and Wholesale Markets: Modeling Framework and Stability Analysis

As the power grid encounter the large-scale integration of renewable generation, there is an increasing need to engage flexible demand-side resources such as distributed energy resources (DERs) into the power systems operation. However engaging millions of DERs in a reliable manner can be a challenging problem. Retail markets can facilitate this by providing a platform to aggregate the flexibility of DERs and bid the aggregate flexibility into wholesale markets. However, unlike generators (which can typically be modeled accurately with capacity constraints and ramping limits), most flexible loads have physical dynamics (like air conditioners) that couples their flexibility over time. This coupling could have unintended undesirable consequences (for example, instability and oscillations in prices and other physical quantities). In this paper, we propose a simple model to capture the evolution of load flexibility over time and analyze stability of the interconnection between wholesale and retail electricity markets. We prove that under a natural model of flexibility evolution (assuming a constant base load), oscillations cannot occur and prices converge to a unique equilibrium quickly.