How can energy communities provide grid services? A dynamic pricing mechanism with budget balance, individual rationality, and fair allocation

Following recent Danish legislation promoting energy communities, we explore how these communities can provide grid services to distribution system operators. Specifically, we focus on “capacity limitation services”, proposing a bilateral agreement in which an energy community is granted reduced grid import tariffs by capping its consumption during certain hours. This requires a coordination mechanism between the community manager and the prosumers within the community. To enable this coordination, we develop a bilevel optimization model that the community manager solves to set dynamic, time- and prosumer-differentiated prices. These prices vary on an hourly basis for each individual community member. This dynamic pricing mechanism ensures key market properties, such as budget balance for the community manager and individual rationality for prosumers. The budget balance constraint ensures that the energy costs incurred by the community manager are equal to the total costs paid by community members, while the individual rationality constraint ensures that these costs are lower than what prosumers would pay if they were not part of the community. Finally, we propose two mechanisms that encourage (though do not guarantee) a fair allocation of the collected benefits among prosumers.