Department of Electrical Engineering

NIT Warangal

Trade of Electricity and Hydrogen in Local Energy Market

Presented by Guided by
Nitesh Kumar Dr. M. Sailaja Kumari
Roll No – 182620. (Professor)
 Abstract

The increasing need of distributed energy resources results in requirement of an efficient market
mechanisms in distribution level networks. This paper establishes a local energy market (LEM)
framework, in which we trade electricity and hydrogen simultaneously. Players in LEM consist
of renewable distributed generators (DGs), loads, hydrogen vehicles (HVs), and a hydrogen
storage system (HSS) which is operated by an HSS agent (HSSA).

In order to establish an efficient result, an iterative LEM clearing method is proposed based on
the merit order principle. Players submit offers/bids with consideration of their preferences and
profiles according to the utility functions to be maximised. The decentralized LEM clearing
process preserves players‟ privacy as well as avoids complex calculation induced by the
centralized decision process.

Case study is conducted that demonstrates that the LEM promotes local integration of renewable
energy, reduces peak demand, and improves players‟ utilities.

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 Contents

 Nomenclature : 04

 Introduction :06

 Basic view of terminologies involved :07

o WEM :07
o REM :07
o LEM :07
o HSS :08

 System & problem description :10

o Overall view of LEM :10
o Iterative LEM clearing method :12

 Mathematical models for players :13

o Renewable Distributed Generator :13
o Load :13
o Hydrogen Vehicle :14
o Hydrogen Storage System Agent :14

 The iterative local energy market clearing method :15

o The LEM clearing principle :15
o Offering/Bidding parameters :15
o The iterative clearing procedure :16
o Flowchart :18
o Issue of convergence :19

 Case study :20

 Conclusion :20

 References :21

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 Nomenclature

i, j, k : Index of renewable DGs / Loads / HVs.

t, l : Index of time slot.

s: Index of scenarios.

r: Index of iteration.

PDG : Electricity generated by DG (kWh).

λDP , λDS : Purchasing/selling price of DisCo (€ /kWh).

λHS : Hydrogen price from hydrogen station (€ /kg).

σs : Weight of scenario s.

εDG, εLoad: Adjustment of offering/bidding prices for DG/Load

PADP: Electricity purchased from DisCo by HSSA (kWh).

PADS : Electricity sold to DisCo by HSSA (kWh).

PALP: Electricity purchased in LEM by HSSA (kWh).

PALS: Electricity sold in LEM by HSSA (kWh).

PAbid: Bidding amount of HSSA (kWh).

PAoffer: Offering amount of HSSA (kWh).

PDGD: Electricity sold to DisCo by DG (kWh).

PDGL: Electricity sold in LEM by DG (kWh).

PDGoffer: Offering amount of DG (kWh).

PDGdeal: Accepted amount of DG (kWh).

PLoad: Electricity consumed by Load (kWh).

PLoadD: Electricity purchased from DisCo by Load(kWh).

PLoadL: Electricity purchased in LEM by Load (kWh).

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PLoadbid: Bidding amount of Load (kWh).

PLoaddeal: Accepted amount of Load (kWh).

QHAL: Hydrogen sold in LEM of HSSA (kg).

QHAS: Hydrogen purchased from hydrogen station of HSSA (kg).

QHV L : Hydrogen purchased in LEM of HV (kg).

QHV S: Hydrogen purchased from hydrogen station of HV (kg).

QHV P: Total purchased hydrogen of HV (kg).

QHV U : Total consumed hydrogen of HV (kg).

QHV bid : Bidding amount of hydrogen of HV (kg).

λAbid: Bidding price of HSSA (€ /kWh).

λAof fer : Offering price of HSSA (€ /kWh).

λLnA: Electricity price in LEM without HSSA (€/kWh).

λL: Electricity price in LEM (€ /kWh).

λHL: Hydrogen price in LEM (€ /kg).

λDGoffer: Offering price of DG (€ /kWh).

λLoadbid: Bidding price of Load (€ /kWh).

λHV: Bid Bidding price of HV (€ /kg).

CA: Cost of HSSA (€).

CHV: Cost of HV (€).

CLoad: Cost of Load (€).

UDG: Utility of DG (€).

ULM , ULMA: Social welfare of LEM without/with HSSA (€).

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 Introduction

Distributed energy resources (DERs) including Distributed Generators (DGs), flexible loads (the
demands can be shifted according to user needs and requirement) and energy storage systems
(ESSs) have been observed to increase in number and hence results in considerable share in
distribution-level networks.
Hence in order to efficiently adopt DERs and properly evaluate their potential impact, there is
requirement of some trading framework of DERs.
The increasing penetration of DERs resulting in large scale coexistence of generation and
consumption in the vicinity of neighborhood, together with the enhancement of communication
and automatic control methods in a smart grid environment, enable the creation of a LEM to
trade DERs within the distribution level, also referred as decentralized or community energy
market.
Since ESS (Energy storage system) shows essential potentials in action of reducing the severity
in fluctuating generation, hence much more attention has been paid towards trading strategies of
ESS.
As for the trading strategy of independent ESSs, most studies only consider the trade towards
wholesale market. However, a distribution level ESS can also trade directly to consumers for
more profitability as other DERs, and the price of purchasing energy for the end – users is
influenced.
HSS has become a promising approach, since the whole electricity-hydrogen conversion process
is carbon free and only utilizes water. The HSS consists of an electrolyzer, a hydrogen storage
tank and a fuel cell. Hydrogen is produced from electrolysis and stored in the hydrogen storage
tank, and the fuel cell is used to generate electricity by hydrogen. Hydrogen can be purchased
from a hydrogen station (HS) and sold to hydrogen consumers like, HVs.
The contributions of this work include establishment of a LEM framework, in which both
electricity and hydrogen are traded. Players of the LEM include renewable DGs, flexible and
non-flexible loads, electric vehicles (EVs), HVs and an HSS. Since the LEM is organized at
distribution level, players can choose to participate in the LEM or trade with DisCo/HS.
The whole LEM clearing procedure only requires players„ offering or bidding parameters (prices
and amounts) instead of their preferences and profiles (detailed utilization parameters of each
appliance), thus preserving their privacy.

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 Basic view of terminologies involved

 Wholesale Energy Market (WEM)

The market participants include Gencos (generating companies), Transco (Transmission

Companies), DisCos (Distribution Companies), customers and Independent System Operator
(ISO). Generating companies compete to sell electricity to competing buyers (Discos and
large customers) connected to the high voltage transmission network.
One of the drawbacks of WEM is that small consumers do not have the option of choosing
their supplier and get power only from their affiliated DisCo. The benefit of price from the
wholesale competition is not accessible to customers as the price is still regulated for them.

 Retail Energy Market (REM)

In REM the drawback of WEM is eliminated by giving access to the consumer to choose the
retail service. The distribution market becomes more competitive as free entry to retails is
provided. Now, the consumers can change their retailers for better services and price.
One of the challenges of REM is that the wholesale electricity price is varying in nature, and
the retailer charges a fixed averaged out the amount of price from the consumers. The fixed
cost of power to the consumer do not give them the opportunity to take benefit of low-cost
power during off-peak load.

 Local Energy Market (electricity)

The traditional electricity market is facing challenges in integrating the new sources of
generation of electricity, technology, infrastructure, increasing demand and the consumer-
oriented market. It has shifted the paradigm towards new market design which will be able to
fit in existing market structure. One of such electricity market is local electricity market. The
benefits of local power generation, storage and demand response all cooperate together and
peer- to- peer model enables the participation of all participants of the market. It uses
information and communication technology (ICT) for sustainable and efficiently transfer of
electricity to then consumers. It integrates the distributed generation, microgrid, and smart
grid into one electricity market at distribution side.

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 Fig1: Local electricity market structure.

 Hydrogen storage system (HSS, the hydrogen market)

So far it is not sufficiently possible to plan wind power and solar energy. And so, the greatest
challenge of the energy revolution is storing. Eg, wind power as efficiently as possible, so
that it will be available when there is no wind. Splitting water into hydrogen and oxygen
using so called electrolyser is one promising method. The hydrogen thus obtained could be
stored, eg. in salt mines underground and used as a multipurpose energy source when needed.

Salt cavern storage requires a site with a layer of salt of sufficient thickness. A storage area is
created in the shape of a large bottle by dissolving the salt. This is then filled with
pressurized gas. One or more bore holes link the cavern to the outside world.

The hydrogen is used in many ways-

 Electricity generation in fuel cell (stationary fuel cell).

 H-Mobility cars.
 The industry needs hydrogen for the manufacture of detergents, plastics and
fertilizers.

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  Small amount of hydrogen can directly be fed to the natural gas grid as wind gas by
reacting it with CO2, it can be converted into synthetic methane and fed into the natural
gas supply system.
2H2 + CO2 CH4 + O2

Fig2: Hydrogen – A promising storage for renewable energy.

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 System & problem description

Earlier we have seen the local energy market which consists of trading of electricity only. But in
this LEM, in which both electricity and hydrogen market are integrated, hence both electricity
and hydrogen being traded.

 Overall view of LEM

Fig3: Overall view of LEM.

This LEM is considered with 4 sorts of players, including renewable DGs, Loads
(flexible, non flexible, EVs), an HSSA (Hydrogen Storage System Agent), and HVs.
Fig. demonstrates an overall view of the LEM. The rectangle in dotted line represents the
distribution network.

Directions of power and hydrogen flows are demonstrated in Fig3.

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 Renewable DGs with zero marginal production costs sell electricity to the DisCo or the
LEM. Loads are households and EVs here. Each household decides on portfolios in
purchasing electricity from theDisCo and LEM based on its own utility function.
The HSSA can either purchase or sell electricity with both the DisCo and the LEM.
Furthermore, it can purchase hydrogen from the HS and sell hydrogen to the LEM.
HVs purchase hydrogen either from the HS or in the LEM.
Noting that the HS is assumed to acquire hydrogen directly from hydrogen-producing
companies, instead of by electrolyzing water. Otherwise, the HS can be considered as the
HSSA. The LEM operator is in charge of gathering offering / bidding parameters (prices
and amounts) from different players aiming at maximizing social surplus. The LEM
operator also broadcasts clearing results.
The DisCo sells electricity to Loads and purchases electricity from renewable DGs and
the HSSA, while the HS provides hydrogen to HVs and the HSSA.
Noting that prices of selling and purchasing electricity with the DisCo are settled based
on wholesale day-ahead prices, thus the LEM is actually a day-ahead market.
The energy deviations from the scheduled quantities in the LEM are balanced with the
DisCo at the selling/purchasing price (λDS/λDP ).

Since the LEM is set at distribution level, the number of players can be large and players
differ in utility/cost features.
To preserve privacy, players broadcast their offers/bids in the LEM instead of preferences
and profiles (detailed utilization parameters of each appliance), and compete on both
price and amount. The privacy of the players is hence preserved.
The competition among the players in this setting is neither competition on price nor
competition on amount, but rather a mixture of both.
Advanced metering infrastructure are utilized for information regarding market prices
and offer/bid parameters exchange in the LEM promptly.

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  Iterative LEM clearing method

Fig4: Iterative LEM clearing method.

In the market-clearing process, each player submits its offering/bidding parameters to the
market operator, who clears the LEM based on the merit order principle to maximize
social welfare, and then broadcasts the results to all players.
Each player then adapts its offering/bidding parameters based on the cleared results
aiming at maximizing its own utility.
The offering/bidding parameters will be sent back to the LEM operator and the LEM will
be cleared again, until no adjustment on players‟ behavior is observed.

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 Mathematical models for players
This section illustrates mathematical models for players to maximize their utilities. The players
can use these to generate their offering/bidding parameters, according to Fig. 4.

 Renewable Distributed Generator

For renewable DG i, the objective function is

where ΓDGi = {PDGDi,t,s , PDGLi,t,s ; ∀ i, t, s} is the variable set.

The objective of a renewable DG is to achieve the maximum value of overall profit in

selling electricity to the DisCo and in the LEM, as represented above. The sum of
electricity sold to the DisCo and in the LEM equals total generation, as shown above.

 Load
The objective function of Load j is

where ΓLoadj = {PLoadDj,t,s , PLoadLj,t,s ; ∀ j, t, s} is the variable set.

The objective of a Load is to achieve the minimum value of overall cost in purchasing
electricity from the DisCo and in the LEM, as represented above. The sum of electricity
purchased from the DisCo and in the LEM equals the total consumption.

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  Hydrogen vehicle

For the HV k, the objective function is

where ΓHVk = {QHVSk,t,s ,QHLVk,t,s ; ∀ k, t, s} is the variable set.

The objective of an HV is to achieve the minimum value of overall cost in purchasing

hydrogen from the HS and in the LEM, as represented in above equation. The total
purchased hydrogen equals the sum of that purchased from the HS and in the LEM

 Hydrogen Storage System Agent

For the HSSA, the objective function is

where ΓA ={PADPt , PADSt , PALPt , PALSt ,QHASt ,QHALt ; ∀ t } is the variable set.
The objective of the HSSA is to achieve the minimum value of overall cost in trading
electricity and hydrogen with the DisCo, HS and LEM, as represented above. The amount
of hydrogen traded in the LEM is constrained as per above mentioned relation.

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 The iterative local energy market clearing method

 The local energy market clearing principle

As stated earlier, the LEM clearing method is in an iterative manner.
The players adjust their offering/bidding parameters after the LEM is cleared, and then
the LEM is cleared again with adjusted parameters and broadcasts the results to players
until no adjustment of players‟ offering/bidding parameters is observed.
In each iteration process, the LEM clearing method should result in maximizing social
welfare and it should respect the merit order principle.
However, if the supply and demand curves fail to intersect, the LEM price will be settled
as the price of the last unit of accepted amount on the curve that has a surplus.
Since the players are able to decide whether to participate in the LEM, their offering /
bidding parameters should assure that they achieve higher utilities in the LEM than in
trading with the DisCo / HS.

 Offering / Bidding parameters

Since players want to achieve higher utilities through every iteration, they determine their
offering/bidding parameters based on the utility values in the last iteration. Specifically, the
offering/bidding parameters are generated according to the utility/cost of trading with the DisCo
in the first iteration.
For DG i, if the accepted amount of electricity in the LEM is PDGdeal,(r−1) i,t at the price of
λL,(r−1) t in the (r – 1)th iteration, then the offering parameters in the tth iteration are

where SDG1,(r)i,t =[0, 1/Ns Σs PDG i,t,s – PDGdeal,(r−1)i,t ],

SDG2,(r) i,t = [ 1/Ns Σs PDG i,t,s – PDGdeal,(r−1)i,t , 1/Ns Σs PDGi,t,s ].
Note that λL,(r−1)t >λDPt , otherwise the DG would not participate in the (r-1)th iteration of
LEM.
Similarly, bidding parameters are calculated for load, HV and offering / bidding
parameters of the HSSA.

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  The iterative clearing procedure

The HVs are the only consumers of hydrogen in the LEM, and their trading strategies are
quite easy to capture. The HVs will purchase hydrogen from the LEM as much as they need
or the LEM can supply, as long as the hydrogen price in the LEM is lower than that from the
HS.
Since the HSSA is the unique hydrogen producer in the LEM, it is capable of settling the
traded amount of hydrogen in the LEM by controlling the hydrogen price in the LEM.

Fig. 5 depicts the iterative LEM clearing procedure and it consists of four steps, as follows.

Step-1
Assume the amounts of electricity accepted by all DGs and Loads are zero, the
offering/bidding parameters of each DG and Load are acquired based on the optimization of
utility functions. The LEM is firstly cleared in the absence of the HSSA after receiving all
offering/bidding parameters from DGs and Loads, because the HSSA will use the cleared
LEM price without HSSA to generate offering/bidding parameters.

The mathematical models of LEM clearing in the absence of the HSSA are as follows, and
the objective is to achieve the maximum value of social welfare, represented as:

Step-2
The HSSA receives cleared prices λLnA,(r)t , optimizes strategies based on utility functions,
and generates offering/ bidding parameters. Then the LEM is cleared in the presence of
the HSSA after receiving all offering/bidding parameters from DGs, Loads, and the
HSSA.

The mathematical models of LEM clearing in the presence of the HSSA are as follows,
and the objective is to achieve the maximum value of social welfare, represented as:

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 Step-3
Two conditions affect the termination of the iterative LEM clearing process.
First, all the DGs and Loads should justify the performance of adjustment in r − 1th
iteration. If the adjustment brings no increase in utility to the DGs or Loads, the
adjustment in the rth iteration is to revise the adjustment in the (r – 1)th iteration.
Second, if the adjustment in the (r – 1)th iteration is accepted by the DGs and Loads, they
still have to decide whether to adjust the offering/bidding prices in the rth iteration.

Step-4
If there still needs some adjustment, go back to Step 1. Otherwise, the iteration
terminates, and the LEM will be finally cleared in the presence of the HSSA with the
results broadcast. Note that identical to the conventional electricity market, when the
LEM is cleared, the results will be sent to system operator for security/voltage check.

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 Start

r=0

Pi,tDGdeal,(r) =0, Pj,tLoaddeal,(r) = 0, for all i,j,t

Optimization of DG i Optimization of Load j Step 1

λi,tDGoffer,(r) ( Pi,tDGdeal,(r)) LEM clearing without HSSA λj,tLoadbid,(r) (Pj,tLoaddeal,(r) )

λtLnA(r)
r = r+1
Optimization of HSSA PtAoffere,(r) , PtAbid,(r) Step 2

ΛtL,(r), Pi,tDGdeal,(r), Pj,tLoaddeal,(r)LEM clearing with HSSA PtAofferdeal,(r), PtAbiddeal,(r)

UiDG,(r) by optimization of DGi CjLoad,(r) by optimization of Load j

CkHV,(r) by optimization of HV k CA,(r) by optimization of HSSA

A t = T mod r
A
ÙiDG,(r) <UiDG,(r-1) &
Y CjLoad,(r) > CjLoad,(r-1)&
λi,tDGoffer,(r)> λi,tDGoffer,(r-1) λj,tLoadbid,(r)< λj,tLoadbid,(r-1)

Y B N N B
λi,tDGoffer,(r)= λi,tDGoffer,(r)-εi,tDG, Mi,tDG=1 λj,tLoadbid,(r)= λj,tLoadbid,(r)+εj,tLoad, Mj,tLoad=1

C C Step 3
Condition 1 Condition 2
D N Y N
D , M DG=1
λi,tDGoffer,(r)= λi,tDGoffer,(r) λj,tLoadbid,(r)= λj,tLoadbid,(r), Mj,tLoad=1
i,t

Y
λi,tDGoffer,(r)= λi,tDGoffer,(r)+εi,tDG, Mi,tDG=0 E E λj,tLoadbid,(r)= λj,tLoadbid,(r)-εj,tLoad, Mj,tLoad=0

Mi,tDG=1 Mj,tLoad=1
N Step 4

LEM clearing withYHSSA

Fig5: Flowchart
End

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 The two conditions mentioned in the flowchart are as follows:

 Condition 1

 Condition 2

 Issue of convergence

Since, HSSA is the unique producer of hydrogen in the LEM, it is able to determine how
much hydrogen is traded in the LEM by adjusting the offering price of hydrogen,
provided the offering amount does not exceed the amount HVs need.
In the case where the supply and demand curves fail to intersect, the LEM price will be
settled as the price of the last unit of accepted amount of the curve that has a surplus.
Therefore, the price varies during the iteration process to balance the supply and demand,
and will necessarily converge. On the other hand, players have the right to choose to
trade with the DisCo or in the LEM, thus prices in the LEM will not exceed those of
DisCo, i.e., in the range of λDPt and λDS t . This attribute introduces caps for the LEM
prices.

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 Case study

The feasibility and effectiveness of the proposed iterative LEM clearing method are numerically
analyzed in a 24-hr. period within a distribution network.
The distribution network consists of Renewable DGs with total capacity of 500 kW, 100
households with 90 EVs and 90 HVs, and an HSSA.
Data of three sorts of tasks of Loads are with an assumption that the starting/ending time
requirements of different tasks are in Gaussian distribution with a standard deviation of 1–3 hrs.
Driving patterns for EVs and HVs are randomly generated based on statistical data from the
National Household Travel Survey (NHTS) data set in the U.S.
All HVs are assumed to be Hyundai ix35 FUEL CELL vehicles.
The HSSA is assumed to have 20 HSSs.

Conclusion

This paper establishes an LEM framework in which electricity and hydrogen are traded by
providing an efficient market mechanism for integration of DERs in a distribution-level network.
Players including renewable DGs, Loads, HVs, and an HSS participate in the LEM by
submitting offers/bids based on their own preferences and profiles according to the utility
functions.
An iterative LEM clearing method is proposed based on the merit order principle, and it not only
avoids complex calculation induced by a centralized decision process but also preserves players‟
privacy.

Case studies are conducted to justify the applicability and efficiency of the LEM. The results
show that the LEM promotes:
The local integration of renewable energy by 33.39%.
Reduces peak demand by 7.21%.
Improves players‟ utilities by 77.96%.

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 References

 Yunpeng Xiao, Xifan Wang, Pierre Pinson, Xiuli Wang,“A Local Energy Market for
Electricity and Hydrogen”, IEEE transactions on Power Systems ( Volume: 33 , Issue: 4,
July 2018 ).

 Local energy markets: Concept, design and operation, Published in: 2016 National Power
Systems Conference (NPSC).

 https://www.centrica.com/innovation/cornwall-local-energy-market .

 www.smartgrid.ieee.org

 Q. Wang, C. Zhang, J. Wang, P. Pinson, and J. Oestergaard, “Real-time trading strategies

of proactive DISCO with heterogeneous DG owners,” IEEE Trans. Smart Grid.

 Z. Ding, Y. Guo, D. Wu, Y. Fang, "A market based scheme to integrate distributed wind
energy", IEEE Trans. Smart Grid, vol. 4, no. 2, pp. 976-984, Jun. 2013.

 Q. Wang, C. Zhang, Y. Ding, G. Xydis, J. Wang, J. Oestergaard, "Review of real-time

electricity markets for integrating distributed energy resources and demand response",
Appl. Energy, vol. 138, pp. 659-706, Jan. 2015.

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