Seminar (Dept. of Management Science and Engineering)

Title: Aggregating Distributed Energy Resources: Efficiency and Market Power

Speaker: Zuguang Gao (Paul Merage School of Business, UC Irvine)

Time: 10:00 (Wednesday), December 20th, 2023

Venue: Room 706, Mingde Business Building

Language: Chinese/English

ABSTRACT：

The rapid expansion of distributed energy resources (DERs) is one of the most significant changes to electricity systems around the world. Examples of DERs include solar panels, electric vehicles/storage, thermal storage, combined heat and power plants, etc. Due to the small supply capacities of these DERs, it is impractical for them to participate directly in the wholesale electricity market. In this talk, we discuss the question of how to integrate these DER supplies into the electricity market, with the objective of achieving full market efficiency. Specifically, we study three aggregation models, where there is an aggregator who procures electricity from DERs, and sells them in the wholesale market. In the first aggregation model, a profit-maximizing aggregator announces a differential two-part pricing policy to the DER owners. We show that this model preserves full market efficiency, i.e., the social welfare achieved by the aggregation model is the same as that when DERs participate directly in the wholesale market. In the second aggregation model, the profit-seeking aggregator is forced to impose a uniform two-part pricing policy to prosumers from the same location, and we numerically show the efficiency loss of this model. In the third aggregation model, a uniform two-part pricing policy is applied to DER owners, while the aggregator becomes fully regulated but is guaranteed positive profit. It is shown that this third model again achieves full market efficiency. Furthermore, we show that DER aggregation also leads to a reduction on the market power of conventional generators. DER aggregation via profit-seeking and/or regulated aggregators have been investigated by CAISO and NYISO, among others, and the recent FERC Order No. 2222 paved the way for aggregators to bid in the wholesale market. Our efficient aggregation models may settle the debate on how DERs should be included in the wholesale electricity market.

SHORT BIOGRAPHY：

Zuguang Gao is an Assistant Professor of Operations and Decision Technologies at the Paul Merage School of Business, UC Irvine. He received his PhD in Management Science/Operations Management from the University of Chicago Booth School of Business. Prior to Chicago, He received the B.S. and M.S. degrees respectively, from the Department of Electrical and Computer Engineering, University of Illinois Urbana-Champaign, where he was also affiliated with the Coordinated Science Laboratory. His research interests generally lie in sustainable operations, broadly defined, with a major focus on electricity market design, power/energy systems, and environmental policy, as well as some other areas related to sustainability (such as supply chains). He has worked on a wide range of research projects, drawing tools from mathematical modeling, optimization, control, game theory, reinforcement learning, algorithm design and data analysis. He has also had collaborations with Argonne National Laboratory and industry practitioners (including Uber and Flexport).