Electricity Markets for DC Distribution Systems: Locational Pricing Trumps Wholesale Pricing

DC distribution systems are a promising alternative to existing AC distribution systems. They connect customers to local energy sources without conversion, thus reducing power losses. However, the unique features of DC impose strict requirements for system operation compared to AC. Within the context of a liberalized energy market, this article demonstrates three promising market designs—an outcome of a comprehensive engineering design framework—that meet those DC requirements. They are an integrated market design, which incorporates all system costs into energy prices; a market design that passes wholesale energy prices directly to prosumers; and a locational energy market design that relieves congestion with nodal prices. An optimization model estimates the three market designs’ performance by simulating a realistic DC distribution system, featuring a high share of electric vehicles. Results indicate that the integrated market design is optimal in theory but computationally infeasible in practice. The wholesale energy price design aiming at constraint-free energy trading requires substantial investments in flexibility. The locational energy market design yields nearly optimal operation in urban networks and is considered the best feasible market design for DC distribution systems.