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Achieving Social Optimality for Energy Communities via Dynamic NEM Pricing

Ahmed S. Alahmed, Lang Tong

TL;DR

The paper proposes Dynamic NEM, a pricing mechanism that sets ex-ante NEM prices based on the community's total shared renewables to maximize social welfare for energy communities behind a PCC. It proves that individual surplus maximization under Dynamic NEM yields the maximum community welfare, while also achieving cost-causation conformity and higher member surplus than staying under utility NEM. The mechanism exhibits a threshold-based, zone-dependent pricing policy driven by aggregate generation $g_ ext{H}$ relative to thresholds $d_ ext{H}^+$ and $d_ ext{H}^-$, including a net-zero zone with a Lagrangian multiplier $ u^igstar(g_ ext{H})$. Decentralized implementations are shown to be efficient and privacy-preserving, with numerical results on real data demonstrating improved member surpluses and reduced reverse power flows for grid operators.

Abstract

We propose a social welfare maximizing mechanism for an energy community that aggregates individual and shared community resources under a general net energy metering (NEM) policy. Referred to as Dynamic NEM, the proposed mechanism adopts the standard NEM tariff model and sets NEM prices dynamically based on the total shared renewables within the community. We show that Dynamic NEM guarantees a higher benefit to each community member than possible outside the community. We further show that Dynamic NEM aligns the individual member's incentive with that of the overall community; each member optimizing individual surplus under Dynamic NEM results in maximum community's social welfare. Dynamic NEM is also shown to satisfy the cost-causation principle. Empirical studies using real data on a hypothetical energy community demonstrate the benefits to community members and grid operators.

Achieving Social Optimality for Energy Communities via Dynamic NEM Pricing

TL;DR

The paper proposes Dynamic NEM, a pricing mechanism that sets ex-ante NEM prices based on the community's total shared renewables to maximize social welfare for energy communities behind a PCC. It proves that individual surplus maximization under Dynamic NEM yields the maximum community welfare, while also achieving cost-causation conformity and higher member surplus than staying under utility NEM. The mechanism exhibits a threshold-based, zone-dependent pricing policy driven by aggregate generation relative to thresholds and , including a net-zero zone with a Lagrangian multiplier . Decentralized implementations are shown to be efficient and privacy-preserving, with numerical results on real data demonstrating improved member surpluses and reduced reverse power flows for grid operators.

Abstract

We propose a social welfare maximizing mechanism for an energy community that aggregates individual and shared community resources under a general net energy metering (NEM) policy. Referred to as Dynamic NEM, the proposed mechanism adopts the standard NEM tariff model and sets NEM prices dynamically based on the total shared renewables within the community. We show that Dynamic NEM guarantees a higher benefit to each community member than possible outside the community. We further show that Dynamic NEM aligns the individual member's incentive with that of the overall community; each member optimizing individual surplus under Dynamic NEM results in maximum community's social welfare. Dynamic NEM is also shown to satisfy the cost-causation principle. Empirical studies using real data on a hypothetical energy community demonstrate the benefits to community members and grid operators.
Paper Structure (20 sections, 5 theorems, 40 equations, 5 figures)

This paper contains 20 sections, 5 theorems, 40 equations, 5 figures.

Table of Contents

  1. Introduction
  2. Related Work
  3. Summary of Results
  4. Problem Formulation
  5. Community Resources
  6. Community Payments
  7. Community Pricing Mechanism
  8. Community Surplus and Welfare Optimization
  9. Dynamic NEM for decentralized welfare optimization
  10. Optimal Community Pricing
  11. Structural Properties of Dynamic NEM
  12. Intuitions of Dynamic NEM
  13. Individual optimization under Dynamic NEM
  14. Numerical Results
  15. Community Members Surplus
  16. ...and 5 more sections

Key Result

Theorem 1

Under Dynamic NEM, the community welfare maximization $\mathcal{P}_{\mathcal{H}}$ is decentrally achieved by the sum of community members' surplus maximizations $\mathcal{P}_{i}$ for all $i \in \mathcal{H}$. $\Box$

Figures (5)

  • Figure 1: Energy community framework. Member consumption and renewables are $d_i, g_i \in \mathcal{R}_+$, respectively, and member net consumption, centralized resources, and aggregate net consumption are $z_i, e, z_\mathcal{H}\in \mathcal{R}$, respectively.
  • Figure 2: Left: Individual and aggregate daily net consumption. Right: Aggregate monthly net consumption and renewable generation.
  • Figure 3: Community monthly surplus and payment gains (%).
  • Figure 4: Adopters/non-adopters monthly surplus and payment gains (%).
  • Figure 5: Aggregate RPFs (in kW) of passive utility customers (top), active utility customers (middle), and energy community (bottom).

Theorems & Definitions (8)

  • Definition 1: Cost-causation principle
  • Theorem 1: Decentralized welfare maximization
  • Theorem 2: Individual rationality
  • Theorem 3: Cost-causation conformity
  • Definition 2: Community operator profit
  • Definition 3: Cost causation and mitigation
  • Lemma 1: Centralized welfare maximization
  • Lemma 2: Individual surplus maximization