A novel multi-objective bi-level optimization approach for strategic participation of hybrid renewable grid-connected microgrids in local electricity markets: Evidence from the Japan electric power exchange market

Unlike prior studies that primarily focus on either optimal sizing or operational scheduling of microgrids separately within local energy markets (LEMs), this paper proposes an integrated optimization strategy that simultaneously determines the optimal sizing and siting of solar PV and wind turbine generators in a grid-connected microgrid (GCMG), while explicitly accounting for its strategic participation in balancing transactions and its influence on the market-clearing mechanism within the LEM. This dual consideration of allocation and market behavior distinguishes the study from existing literature. To this end, a novel multi-objective bilevel optimization framework is developed, in which the GCMG operator adjusts its offering strategy by optimizing its selling price to minimize both operational costs and grid voltage instability, while the local energy market operator clears the market by optimizing submitted bids and offers to maximize social welfare. The framework is validated using the IEEE 10-bus distribution network (DN) under two seasonal scenarios (summer and winter), incorporating hourly residential load data from Tokyo, Japan, and electricity prices from the Japan Electric Power Exchange (JEPX). A detailed hourly analysis for two representative days shows that the GCMG attains a market share of 100% on January 28, characterized by high wind availability, and 63.7% on August 6, characterized by high solar irradiance. The results demonstrate that the proposed strategy can significantly influence LEM prices while ensuring economically favorable outcomes for GCMG participation. The findings demonstrate that the proposed strategy not only provides an effective framework for optimizing microgrid planning and operation but also represents a novel approach for enabling strategic participation of microgrids in LEMs while simultaneously influencing market outcomes.