Mechanism Design for Ancillary Service Market Considering Social Welfare and Fairness

Increasing penetration of distributed energy resources in the distribution network (DN) is threatening safe operation of the DN, which necessitates setup of the ancillary service market in the DN. In the ancillary service market, distribution system operator (DSO) is responsible for safety of the DN by procuring available capacities of aggregators. Unlike existing studies, this paper proposes a novel market mechanism composed of two parts: choice rule and payment rule. The proposed choice rule simultaneously considers social welfare and fairness, encouraging risk-averse aggregators to participate in the ancillary service market. It is then formulated as a linear programming problem, and a distributed solution using the multi-cut Benders decomposition is presented. Moreover, successful implementation of the choice rule depends on each aggregator’s truthful adoption of private parameters. Therefore, a payment rule is also designed, which is proved to possess two properties: incentive compatibility and individual rationality. Simulation results demonstrate effectiveness of the proposed choice rule on improving fairness and verify properties of the payment rule.