The double penalty of congestion: V2G aggregation in capacity markets

While Vehicle-to-Grid (V2G) aggregation is widely envisioned as a low-cost virtual power plant, its systemic value is constrained by spatial-temporal traffic frictions and engineering limits. To bridge the gap between idealized capacity models and operational realities, this paper proposes a two-stage techno-economic game framework coupling stochastic urban mobility, battery degradation, and cross-market value stacking. By integrating a Poisson Point Process (PPP) for spatial matching, we formalise the “Double Penalty of Congestion,” demonstrating that traffic not only physically strands real-time dispatchable capacity but also structurally crowds out ex-ante infrastructure investments. Crucially, our numerical simulations reveal a systemic “Cancellation Effect”: although battery degradation raises the micro-level participation friction for EV owners, this upward price pressure is structurally offset by the aggregator’s ability to cross-subsidize sunk capital costs through value-stacking ancillary services. Furthermore, welfare analysis demonstrates that V2G aggregator entry suppresses equilibrium scarcity clearing prices via a competitive-fringe mechanism, channeling consumer surplus gains through the price-suppression channel. To maintain grid reliability against mobility shocks, we propose the Traffic-Indexed Capacity Mechanism (TICM), urging policymakers to move beyond static targets and explicitly remunerate thermal plants as “Congestion Hedges.”