TSO-DSO-Consumers Coordination for Flexibility Procurement: A Tri-level Optimization Approach

Demand-side flexible resources are essential for transmission system operators (TSOs) and distribution system operators (DSOs) to manage the intermittency and uncertainty of distributed renewable energy. We investigate the strategic interactions of TSO, DSO, and consumers for flexibility procurement, through a tri-level optimization problem. In the upper-level (UL) problem, TSO aims to address system imbalances with minimal operating costs by procuring its own flexible resources and incentivizing its DSOs to provide flexible resources. In the middle level (ML), given the upward and downward flexibility prices set by the TSO, DSOs maximize their profit by procuring local resources, including their own flexible resources and the consumers' flexible resources. In the lower level (LL), consumers make demand response decisions to maximize their utility based on the flexible prices set by their DSOs. Despite the challenges in solving the tri-level problem, we propose a modified Column-and-Cut Generation (C&CG) algorithm that can efficiently solve the proposed problem. Numerical studies show that the consumers' participation is beneficial for all market participants, including TSO, DSO, and consumers.