Mechanism design of ancillary service market considering social welfare and fairness

The increasing penetration of distributed energy resources in the distribution network (DN) is threatening the safe operation of the DN, which necessitates the setup of the ancillary service market in the DN. In the ancillary service market, the distribution system operator (DSO) is responsible for the safety of the DN by procuring available capacities of aggregators. Unlike existing studies, this paper proposes a novel market mechanism composed of two parts: choice rule and payment rule. The proposed choice rule simultaneously considers social welfare and fairness, encouraging risk-averse aggregators to participate in the ancillary service market. It is then formulated as a linear programming problem and a distributed solution using the multi-cut Benders decomposition is presented. Moreover, the successful implementation of the choice rule depends on each aggregator's truthful adoption of private parameters. Therefore, a payment rule is also designed, which is proved to possess two properties: incentive compatibility and individual rationality. The simulation results demonstrate the effectiveness of the proposed choice rule on improving fairness and verify the properties of the payment rule.