The Impact of Multi-Location Electricity Consumers' Flexibility on Distributed Energy Resources' Pricing Power

Abstract

Multi-location electricity consumers (MLECs) procure electricity for loads at several locations, either from distributed energy resources (DERs) connected behind-the-meter or from the grid. If an MLEC cannot shift its demand between the locations, DERs will often be local monopolists behind the meter and have no incentive to offer the MLEC prices below the grid price. In contrast, if an MLEC can flexibly shift its demand, it may achieve lower procurement costs since the DERs in different locations now compete against each other, at least partially. By modeling a tri-level non-cooperative game between risk-averse DERs with the MLEC as a price-taker, we determine the critical level of MLECs' flexibility required to break DERs' market power. Our theoretical findings, corroborated by empirical simulations, reveal that MLECs with sufficient flexibility can significantly reduce their electricity procurement costs in decentralized energy markets by influencing DERs' pricing strategies.