Translation-Symmetric Market: Enabling Incentive Compatibility For DER Aggregation

TL;DR

This paper tackles incentive compatibility in hierarchical DER aggregation by proposing a Translation-Symmetric Market (TSM) framework, where market-clearing models share identical forms across levels and intra-level prices remain invariant. By establishing an inductive IC property and price invariance ($\lambda_s^{l}=\lambda_s^{l+1}$) under specified assumptions, TSM ensures competitive conditions and transparent valuation for resource contributions throughout the hierarchy. The authors present propositions and a toy-case proof for a simplified setting, and demonstrate a two-level case study with a VPP comprising an ES, an EV fleet, and a TCL participating in NYISO markets, showing that internal shadow prices align with system values and that truthful reporting is generally incentivized. The findings suggest that, with top-level competition, TSM can enable fair profit allocation and robust incentive compatibility in DER aggregation, though extending these results to full generality with complex network constraints is left for future work.

Abstract

Virtual power plants (VPPs) are indispensable for coordinating the rapidly growing portfolios of distributed energy resources (DERs) and enabling them to deliver multiple services into higher-level electricity markets. However, the profit allocation procedures that govern VPP participants become increasingly challenging to keep incentive-compatible due to the enlarged DER market power within each VPP, compared to directly bidding into the wholesale market. In this paper, we formulate both the VPP's market participation and its internal operation and profit allocation as consistent market-clearing processes. Building on this unified view, we propose the concept of a translation-symmetric market (TSM) framework, in which market-clearing models maintain identical structural forms across all hierarchical levels. We prove that translation symmetry induces an inductive property: once incentive compatibility holds at one level, it propagates downward to the internal settlements between the VPP and its constituent DERs. TSM also preserves service prices across levels, ensuring competitive conditions and enabling transparent valuation of resource contributions. Theoretical analysis and case studies illustrate how TSM secures incentive-compatible profit allocation in aggregating DERs to provide multiple services.

Figures (4)

• Figure 1: Concept of translation-symmetric market (TSM) framework: The market framework employs market-clearing models with identical structural forms across all hierarchical levels, exhibiting symmetry under translation transformations. This symmetry preserves market properties such as incentive compatibility and invariance of service prices ($\lambda^{l}_s$) throughout the hierarchy.
• Figure 2: Profit allocation results of compared methods. All three methods yield similar allocations, validating the effectiveness of the proposed method in quantifying each resource's contribution to the VPP profit.
• Figure 3: Hourly prices ($\lambda^{L}_s$) from NYISO day-ahead market on April 13, 2024, used as top-level market prices.
• Figure 4: VPP profit allocated to EV1 under strategic misreporting scenarios. Reporting a 10% increase or decrease in cost or capacity parameters does not yield additional profit, indicating incentive compatibility. However, simultaneously reporting 110% of both cost and capacity parameters does increase profit, highlighting the need for performance-based allocation mechanisms.

Theorems & Definitions (2)

• proof
• proof