Modeling economic interactions between microgrids and electric utilities: A regulator's perspective

Abstract

This paper considers the potential development of a microgrid in a market served by a vertically integrated electric utility, regulated based on cost of service. The interaction among the utility, the microgrid developer and consumers potentially representing the microgrid's load is assessed in the framework of cooperative game theory, assuming exchangeable utility. We present scenarios based on different underlying assumptions, showing when microgrid development might be beneficial and how it would affect market prices, costs and benefits to the various parties in the network. We also discuss possible regulatory tools that could be used to align private objectives with social welfare maximization.