Impact of distribution locational marginal pricing and cost-sharing pricing mechanisms on fairness, efficiency, and voltage quality in transactive energy systems

Daniel Galeano-Suárez, David Toquica, Nilson Henao, Kodjo Agbossou and Jc Oviedo-Cepeda

Utilities Policy, 2025, vol. 93, issue C

Abstract: The increasing integration of distributed energy resources and the evolution of smart grids pave the way to Transactive Energy Systems (TES). Numerous initiatives have been made to craft pricing mechanisms on TES as incentives to leverage resource flexibility and contribute to improving technical and economic indexes. Nevertheless, comparing these pricing mechanisms is challenging due to the fluctuating market conditions and diverse TES configurations. This research compares the impact of the Distribution Locational Marginal Pricing (DLMP) and Cost-Sharing (CS) pricing mechanisms on TES fairness, economic efficiency, and voltage quality under identical market conditions. In addition, a unified index is proposed to compile market metrics and facilitate Distribution System Operator (DSO) decisions on pricing according to weighted objectives. Accordingly, this research contributes valuable insights that promote TES expansion and better management for DSOs and market regulators. This paper uses a transactive forward market on the IEEE-33 bus test system as a case study. The results show that CS pricing yields complete price fairness. In contrast, the DLMP forgo fairness for the sake of economic efficiency. Here, the unified index reveals that CS pricing is preferable when the DSO weights equally fairness and efficiency, even though DLMP demonstrates a superior voltage quality index in the case study. The developed comparison framework is general to all pricing mechanisms as it simplifies the interactions between the DSO and the consumers through price and energy demand signals.

Keywords: Efficiency; Fairness; Pricing mechanism; Voltage quality; Transactive energy (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juipol:v:93:y:2025:i:c:s0957178725000050

DOI: 10.1016/j.jup.2025.101890

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