Operation and Control of Prosumers to Provide Flexibility and Capacity Firming

Abstract

The global energy transition—driven by decarbonization targets, coal retirements, and widespread deployment of distributed energy resources (DERs)—is transforming passive electricity consumers into active prosumers equipped with rooftop photovoltaic (PV) systems and home batteries. While prosumers enhance grid flexibility, they also present challenges for system operators tasked with balancing reliability, efficiency, and economic objectives. This thesis proposes an integrated bilevel modeling framework—a two-level optimization that links system-wide decisions (upper level) with prosumer responses (lower level)—to coordinate prosumer flexibility within realistic policy and market contexts, encompassing tariff design, operational assessment, and capacity firming. Validated using a simplified 2025 Australian National Electricity Market model, the framework demonstrates how prosumer virtual power plants can reshape load profiles, enhance system dispatchability, and offer cost-effective decentralized firming solutions.

Initially, the thesis introduces a bilevel tariff optimization framework that co-designs dynamic import and export tariffs. Anticipating prosumer responses through equilibrium modeling, the developed approach explicitly captures asymmetric price incentives inherent in emerging net billing policy structures—where exports are credited below the retail import rate. A decomposition-based column-and-constraint generation algorithm efficiently addresses the computational complexities of the resulting mixed-integer bilevel problem. Simulations demonstrate that dynamically optimized, asymmetric tariffs effectively smooth net load profiles, reduce simultaneous PV exports, and align prosumer actions with system-wide operational goals.

Subsequently, the thesis evaluates system-level operational impacts of these net billing tariffs through an advanced bilevel production cost model (PCM). Unlike conventional PCMs that assume centralized control or symmetric tariffs, this model explicitly incorporates autonomous prosumer behavior driven by policy-constrained incentives for self-consumption. Employing an exact linearization technique based on the primal-dual counterpart and Karush–Kuhn–Tucker optimality conditions, the model quantifies how policy-driven prosumer responses impact grid flexibility, highlighting the reduction in system flexibility under strict net billing scenarios as battery capacities scale relative to PV.

The final stage extends the operational assessment to examine prosumer batteries' potential contributions to capacity firming within the bilevel PCM. This part of the thesis introduces explicit firming constraints into the upper-level market model, allowing system operators to harness surplus residential battery capacity after self-consumption needs are met. Results demonstrate that aggregated prosumer batteries significantly reduce reliance on conventional gas generation and utility-scale storage, offering a cost-effective, distributed firming resource. Economic analysis further illustrates diminishing marginal returns from prosumer participation, emphasizing the importance of tailored incentive schemes to sustain prosumer engagement.

Together, these contributions form a comprehensive analytical framework linking decentralized prosumer decision-making with centralized system operations and regulatory design. The developed models provide actionable insights and practical tools for policymakers and system planners managing the complexity of future grids with high DER penetration, supporting a smoother and economically viable transition towards decarbonized and resilient electricity systems.