Aggregating levelized cost functions in microgrids for transmission grid operation

While much research effort has been devoted to operation of microgrids, how the economic benefits of microgrids can be integrated into the transmission-level main grids remains as an open question. Motivated by this observation, we position the microgrid operation problem that is compatible with the main grid operation problem. This paper first presents an economic structure where multiple microgrids can be aggregated into the transmission-level main grids through load serving entities. Assuming that a microgrid energy manager (MEM) can bid into the market through a load serving entity, we solve the optimal scheduling of various distributed energy resources (DERs) in a microgrid. We construct detailed cost functions for DERs taking into account the costs of aging and fuel. The resulting cost functions can be non-increasing in terms of power, which is significantly different from cost functions of traditional bulk power producers, and can hinder MEMs from participating in the market. However, we show that as a result of the optimal scheduling of DERs, a MEM can obtain a single linear bid, which is the marginal cost of the microgrid system for each time step. This is compatible with the market structure at the main grid level. We also show the impact of including levelized costs of DERs compared to a case assuming zero short-term costs.