The Impact of Aggregating Distributed Energy Resources on Electricity Market Efficiency

Distributed energy resources (DERs) have too small supply capacities to directly participate in a wholesale electricity market. In this paper, we study the efficiency of the market, when a collection of DERs are represented by a profit-maximizing aggregator. We model the interaction between the aggregator and the DER owners as a Stackelberg game. Our analysis characterizes the price of aggregation—the efficiency loss due to the strategic incentives of the aggregator in representing a collection of DERs as opposed to direct DER participation in the wholesale market.