Fair Aggregation in Virtual Power Plants

2026-04-03

AI Summary

This study addresses the challenge that profit-maximizing pricing in virtual power plants often leads to insufficient participation from low-flexibility users and inequitable benefit distribution. To mitigate this, the authors propose a fairness-aware pricing framework that models the interaction between aggregators and users as a Stackelberg game and, for the first time, systematically compares the impacts of three fairness criteria—energy-based, price-based, and utility-based. Leveraging Nash welfare analysis and empirical data from Norway’s tiered electricity pricing, the findings demonstrate that incorporating moderate fairness mechanisms enhances overall system performance. Notably, utility-based fairness effectively safeguards the interests of low-flexibility users while avoiding excessive preferential treatment of high-flexibility participants, thereby achieving a more equitable welfare allocation.

Abstract

A virtual power plant (VPP) is operated by an aggregator that acts as a market intermediary, aggregating consumers to participate in wholesale power markets. By setting incentive prices, the aggregator induces consumers to sell energy and profits by providing this aggregated energy to the market. This supply is enabled by consumers' flexibility to adjust electricity consumption in response to market conditions. However, heterogeneity in flexibility means that profit-maximizing VPP pricing can create inequalities in participation and benefit allocation across consumers. In this paper, we develop a fairness-aware pricing framework to analyze how different fairness notions reshape system performance, measured by consumer Nash welfare, total consumer utility, and social welfare. We consider three fairness criteria: energy fairness, which ensures equitable energy provision; price fairness, which ensures similar incentive prices; and utility fairness, which ensures comparable levels of consumer utility. We model the aggregator-consumer interaction as a Stackelberg game and derive consumers' optimal responses to incentive prices. Using a stylized model, we show that profit-only pricing systematically disadvantages less flexible consumers. We further show that energy fairness can either improve or worsen all performance measures, and gains across most measures arise only at moderate fairness levels. Surprisingly, price fairness never benefits less flexible consumers, even when it reduces price disparities. By contrast, utility fairness protects less flexible consumers without benefiting more flexible ones. We validate our findings using data from an experiment in Norway under a tiered pricing scheme. Our results provide regulators and VPP operators with a systematic map linking fairness definitions and enforcement levels to operational and welfare outcomes.

Problem

• Virtual Power Plant
• Fairness
• Incentive Pricing
• Consumer Heterogeneity
• Energy Flexibility

Innovation

• fairness-aware pricing
• virtual power plant
• Stackelberg game
• consumer heterogeneity
• Nash welfare