Market-Driven Flexibility Provision: A Tri-Level Optimization Approach for Carbon Reduction

Abstract: The integration of renewable energy resources (RES) in the power grid can reduce carbon intensity, but also presents certain challenges. The uncertainty and intermittent nature of RES emphasize the need for flexibility in power systems. Moreover, there are noticeable mismatches between real-time electricity prices and carbon intensity patterns throughout the day. These discrepancies may lead customers to schedule energy-intensive tasks during the early hours of the day, a period characterized by lower electricity prices but higher carbon intensity. This paper introduces a novel and comprehensive framework aimed at encouraging customer participation in electricity markets and aligning their flexibility with carbon intensity trends. The proposed approach integrates an incentive-based tariff with a tri-level optimization model, where customers are motivated to submit flexibility bids and, in return, receive financial rewards based on their contributions. The tri-level model ensures a dynamic interaction between the market operation platform (MOP) and end-users. Simulations are performed on a modified IEEE-33 bus system, supported by two scenarios with different RES generations and customer behaviors. Results demonstrate the effectiveness of the proposed framework in guiding the customers' consumption behaviors towards low carbon intensity.