Integrating Variable Distribution Use-of-System Tariffs and Local Flexibility Markets Through a Bilevel Modeling Approach

Although the large-scale integration of distributed energy resources constitutes a fundamental pillar of low-carbon energy systems, it creates an increasing stress in distribution networks, requiring mobilisation of the flexibility of those resources to resolve network congestion. To this end, two alternative mechanisms that have recently gained attention are temporally- and spatially-differentiated distribution use-of-system tariffs and local flexibility markets. However, existing research has investigated these two mechanisms in silos, neglecting their potential synergies in mobilising distributed energy resources flexibility. This paper aims at addressing this research gap by proposing a bilevel optimisation model which captures the interactions between a distribution system operator designing variable distribution use-of-system tariffs and operating a local flexibility market based on capacity limitations, and aggregators of electric vehicles with smart charging capability reacting to the designed tariffs and procured capacity limitations. The model is tested on a real 47-node distribution network. The presented studies illustrate cases where the two mechanisms synergetically resolve congestion phenomena and demonstrate that their combination results in a significant reduction of total system costs.