Locational Marginal Pricing for Flexibility and Uncertainty With Moment Information

The continuous growth of variable renewable integration has greatly increased uncertainty and variability in the power system, resulting in unprecedentedly high demand for flexibility. Recently, there has been much attention in the power industry to manage the flexibility and uncertainty via market mechanisms. This paper presents a novel approach to jointly clearing energy, reserve, and uncertainty with moment information based on distributionally robust chance constraints (DR-CC). Locational marginal prices (LMP) are derived for both energy and reserve. Uncertainty is modeled with statistical moments of historical forecast errors, and uncertainty marginal prices (UMP) are defined to reflect the marginal cost of uncertainty following the cost-causation principle. The congestion cost of reserve trading is explicitly modelled, and is shown to fully cover financial transmission right (FTR) underfunding. We show that the proposed mechanism guarantees revenue adequacy and provides appropriate incentives for efficient operation and investment. Case studies are carried out to illustrate the impact of the proposed market scheme, and its feasibility is demonstrated on a testbed system based on a real-world 1934-bus grid.