A local flexibility market mechanism with capacity limitation services

Local flexibility markets have a substantial potential to unlock the flexibility of distributed energy resources in the distribution level. Capacity limitation services have been perceived as one of the most appealing products to be traded in these markets. This work argues why classical marketclearing and pricing mechanisms such as pay-as-bid, uniform pricing and Vickrey-Clarke-Groves (VCG) are not compatible with a market that trades capacity limitations. As a solution, we propose a local flexibility market mechanism which is built upon an adapted VCG-based auction. The mechanism achieves a trade-off among various desirable economic properties, including budgetbalancedness, incentive-compatibility and stability. The suitability of the proposed mechanism is illustrated using a case study which is based on a real medium voltage feeder, located on the Danish island of Bornholm. Results show that aggregators and the distribution system operator benefit from the trade of capacity limitation services. We eventually conclude by providing a set of policy recommendations for the real-life operation of such a market.