Electricity market policies for penalizing volatility and scheduling strategies: The value of aggregation, flexibility, and correlation

We consider small energy producers and consumers (i.e. prosumers), organized in groups in order to trade energy in wholesale markets as a single Virtual Microgrid entity. A market procedure is described, from the day-ahead to the balancing market, including load rescheduling procedures. Violations of day-ahead contracts are charged via a dynamic penalty policy in the form of a spread between buy and sell price of electricity in the balancing market. Before the balancing market, the Virtual Microgrid Association calls for its prosumers' flexibility and motivates them for smart load rescheduling to reduce exposure to market losses. Active and passive scheduling strategies are evaluated and a new hybrid approach is shown to achieve better profits for all values of the spread and the flexibility factor. We present a method of quantifying the value of a prosumer's flexibility and provide insights for a future policy of effectively compensating prosumers for their flexibility. The effects the penalty policy and the choice of the spread parameter have on the prosumers' behavior are studied and important insights are provided. The possibility of cooperation among prosumers in a certain geographical area is also studied, showing that it can lead to more intelligent and profitable operation.