A general Nash Bargaining solution to the TSO-DSOs coordinated flexibility trading market

The increasing penetration of distributed energy resources (DERs) brings the valuable flexibility to the system as well as challenges, which requires the coordination between transmission system operator (TSO) and distribution system operators (DSOs). This paper quantitatively models the goals and constraints of TSO and DSOs in procuring flexibility resources from DERs and proposes a flexibility market. We resolve the potential conflicts between TSO and DSOs in the flexibility market via mutual economic compensation, specified by Nash Bargaining (NB) theory. Two alternative TSO-DSOs interaction modes, i.e., the DSO-managed mode and the hybrid-managed mode, and two detailed payment schemes are discussed and compared. The hybrid-managed mode guarantees efficiency and fairness, while the DSO-managed mode is less complicated and can protect information privacy. Numerical studies further validate our findings. •Quantify the coupling effects of the respective actions of TSO and DSOs.•Analyze the TSO-DSOs interactions using the General Nash Bargaining (GNB) theory.•Compare TSO-DSOs interaction modes in terms of complexity, fairness, and efficiency.•Show implications for choosing the payment scheme to derive closed-formed solutions.