This article has been accepted for publication in a future issue of this journal, but has not been
fully edited. Content may change prior to final publication. Citation information: DOI 10.1109/TSTE.2017.2705838, IEEE
Transactions on Sustainable Energy
Multi-agent Optimal Allocation of Energy
Storage Systems in Distribution Systems
Yu Zheng, Member, IEEE, David J. Hill, Life Fellow, IEEE, Zhao Yang Dong, Fellow, IEEE,
 also address generation randomness. Consequently, the
Abstract—A variety of optimal methods for the allocation of a
battery energy storage system (BESS) have been proposed for a
distribution company (DISCO) to mitigate the transaction risk in
a power market. All the distributed devices are assumed to be
owned by the DISCO. However, in future power systems, more
parties in a distribution system will have incentives to integrate
BESS to reduce operational cost. In this paper, an enhanced
BESS optimal allocation method is proposed for multiple agents
in a distribution system. First, the electricity market mechanism
is extended to a distribution system, and the corresponding
energy transaction process is modeled for different agents, such
as wind farms, solar power stations, demand aggregators, and the
DISCO. The uncertainties of renewable energy and demand are
addressed using stochastic methods. In the proposed transaction
model, the integration of BESS can help an agent reduce the
operational cost, also defined as the payoff function. Next, game
theory is introduced in this paper to investigate the interactions
among the agents and to determine the BESS integration plans.
The agents are built as players who are willing to minimize their
payoff functions in the proposed non-cooperative game. The
Nash equilibrium, which is the best strategy for the players, is
proved to exist. Such equilibrium can be solved using an iterative
algorithm. The proposed BESS allocation method for the multi-
agent system is verified for two cases, and the payoff reductions
are quantified based on the proposed distribution energy
transaction mechanism.
Index Terms— Distribution System, Electricity Markets,
Energy Storage System, Renewable Energy, Multi-utilities, Game
Theory
I. INTRODUCTION
W ITH the modernization of electric power systems,
greater uncertainty in the amount of power delivered is
caused by the varied demand and the intermittent output of
renewable energy sources. Traditionally, the power balancing
requirement is fulfilled by generation following demand; such
balancing is typically achieved in layers of generation dispatch
and control. For high levels of renewable energy, the
balancing task becomes more complicated. Significant
generation reserve capacity is required to meet the peak
demand and the stochastic demand curve. This reserve must
Manuscript received Aug. 27, 2016. The work was fully supported by a
grant from the Research Grants Council of the Hong Kong Special
Administrative Region under Theme-based Research Scheme through Project
No. T23-701/14-N.
Y. Zheng and David J. Hill are with the Department of Electrical and
Electronic Engineering, The University of Hong Kong, Hong Kong (e-mail:
zhy9639@hotmail.com,dhill@eee.hku.hk).
David J. Hill and Z.Y. Dong are with the School of Electrical and
Information Engineering, the University of Sydney, Sydney, 2006, NSW
Australia (email: david.hill@sydney.edu.au, joe.dong@sydney.edu.au).
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methods to implement such key process have shifted to
employ more and various distributed resources and control
algorithms. A battery energy storage system (BESS) is a
special technology that can provide fast response for power
charging and discharging. The potential advantages of the
BESS must be exploited in future power systems to provide
enhanced balancing and control capability, energy efficiency
and reliability. For example, storing energy in a valley period
and releasing back the energy at peak time [1] and reducing
the intermittency of renewable energy [2] are possible.
The integration of BESS in the power grid and the
corresponding control algorithms have been widely discussed
and studied. The application of grid-scale BESS was
considered as a promising future and a wide range of
requirements in [3]. A battery sizing method and
corresponding operation strategy were proposed for spinning
reserve in a small isolated power system in [4]. The frequency
control requirements are fulfilled with BESS in this research.
In [5], an optimal management strategy was proposed for a
battery system coupled with wind generators to enhance the
generation performance. Similar to wind power, the output of
solar photovoltaic power generation can change rapidly. A
variety of operation modes for BESS in grid-tied solar is
illustrated in [6], taking into account the ramp rate, frequency
control, power factor correction, generation shifting, and
output leveling. Although battery energy storage has been
proved to be capable of providing strong support for the
system operator, one major challenge to implement large-scale
integration of BESS in future power systems is ensuring the
economic feasibility of the approach. A cost-benefit analysis
based method for optimal sizing of BESS in a microgrid is
presented in [7]. Reference [8] also addressed the optimal
allocation problem of BESS in a microgrid using an economic
analysis methodology. Moreover, in a future deregulated
power system with high distributed generation, a distribution
company (DISCO) should be encouraged to participate in the
power market actively. A BESS-based operation strategy for
the DISCO to mitigate the potential transaction risk was
proposed in [9, 10]. The cost and benefit were also quantified
to allocate the BESS in the distribution system optimally.
Given the improvement on the dispatch capability of
renewable energy resources with BESS, the DISCO can
integrate more distributed generation and obtain benefits from
the energy transactions.
Generally, the above-described methods are designed and
implemented for different organizations and for different
purposes; as a result, these methods follow different control
strategies. Each of these methods has its own merits and
drawbacks. However, to date, most of the existing research
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focuses on the interest of only one resource or multiple
resources owned by one agent. In a multi-agent system, the
competition and interaction among different BESS owners
change the cost-benefit results significantly. To address such a
challenge in planning processes, a comprehensive BESS
allocation method and operation strategy should take the
interactions among agents into account rather than focusing on
the independent agent’s behavior individually. Game theory is
a powerful tool to analyze such interactions and competitions
and provide a solution to the complicated allocation problem
in a distributed manner. A game theoretic approach is used to
formulate an energy consumption scheduling game for a
demand-side energy management system in [11]. Based on the
users’ preferences and energy consumption patterns models, a
Vickrey-Clarke-Groves (VCG) mechanism is applied in [11]
to guarantee the efficiency of the proposed scheduling method
and to reduce the information collection. In addition to the
application in demand-side management, game theory has
received increasing attention in many other aspects of power
systems. A game theoretic model is proposed for multiple
virtual power plants dispatch [12] where various distributed
generations and battery storage devices are considered
simultaneously. The interactions and energy trading decisions
of distributed storage units are studied using a novel game
theoretic framework [13]. Game theory is also introduced for a
planning problem to construct a grid-connected hybrid power
system comprised of renewable energy and storage batteries
[14]. Inspired by the good performances of game theory in the
investigation of multiple agents’ behavior, we propose an
extended energy transaction mechanism in a distribution
system and formulate a non-cooperative game for multiple
agents to determine their own battery installation plan. The
main contributions of this paper are summarized as follows:
 The distributed renewable energy generation and demand
are modeled as different agents in a future distribution
system. We extend the energy transaction mechanism in
the power market for these agents in the distribution
system to encourage them to track the forecasted energy
consumption and generation and allow reduction of the
energy purchasing cost.
 We apply a multi-state stochastic model to assess the
forecast errors of renewable energy and demand. A
discrete model is formed from the continuous probability
distribution functions of various resources. The expected
transaction risks caused by the forecast errors are
quantified using the stochastic model.
 A non-cooperative game is formulated to represent the
optimization problem of maximizing the individual utility
function of each agent with a BESS. In this way, the
agents’ behavior and the interactions among them can be
investigated.
 The desired properties of the battery installation game are
analyzed in this work. First, the unique existence of the
Nash equilibrium is proved. Next, the truth declaration is
proved to be the dominant strategy of agents which
guarantees the efficiency of the proposed mechanism and
solution algorithm.
 The simulation results verify that both DISCO and
distributed agents can benefit from optimal BESS
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allocation. The proposed solving algorithm achieves the
Nash equilibrium effectively.
The content of this paper is organized as follows. After the
Introduction section, the operational model of the distribution
system with multiple agents is presented. Next, we formulate
the non-cooperative game for the BESS allocation problem
and prove the existence of a Nash equilibrium and dominant
strategy. Subsequently, the solving algorithm is introduced.
Case studies are conducted and simulation results are analyzed
to validate the performance of the proposed planning method.
The conclusions and future work are discussed in the last
section.
II. OPERATIONAL MODEL OF MULTI-AGENTS
A. System Model
In this paper, a distribution system is managed by a number
of agents serving the demand or operating the distributed
generation. With high renewable energy penetration, DISCOs
have the ability to sell excess energy to the electricity markets.
The DISCO is also considered as a leader agent that is
responsible for making the energy bid in the day-ahead market
and balancing the real power consumption in real-time market.
The DISCO obtains forecasted energy consumption or
generation schedule information submitted by follower agents
for the next 24 hours. Next, the DISCO bids in the day-ahead
market according to the forecasted net demand. The system
net demand Pnet can be computed as
n n
 P  G
(1)
Pnet  i i
i 1 i 1
where Pi and Gi are the power consumption and generation of
agent i , respectively; n is the total number of agents. We
assumed all the loads and generations are served by agents.
Because of the uncertainties of renewable energy and demand,
the net demand cannot be forecasted with a high accuracy.
Thus, the DISCO must compensate for the gap between the
actual demand and the expected one in the real-time market,
resulting in high risk of energy transaction. In the PJM market,
if the actual load deviates from the day-ahead purchasing, the
DISCO should pay charges (known as the congestion fee) at
the real-time price. Therefore, BESS is applied to track the net
demand profile for power transaction risk mitigation [9].
In this paper, the distributed resources and the demand are
operated by different agents rather than a DISCO. The market
mechanism is extended in such a system for the transaction
between the DISCO and the follower agents. The procured
energy in a day-ahead market is allocated to the agents
according to the submitted energy information. Similar to the
transaction of a DISCO in the electricity market, the agents are
punished if the energy consumed or generated in real time is
different to the submitted one. For simplicity, we assumed that
each agent serves one type of resources. As shown in Fig.1,
three groups of agents are modeled in this paper: namely, wind
agents, solar agents and demand agents. It is assumed that the
billing system of the DISCO is budget-balanced and the
balancing cost (penalty) in the real-time market is transferred
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Transactions on Sustainable Energy

to the agents. Thus, the penalty charged to each agent can be where Pi bess is the charging power of the BESS installed by
determined as follows: agent i ; Si is the BESS capacity of agent i ;  is the rating
BESS of
power/capacity ratio of the BESS considered in this paper.
Distribution Company Electricity markets
Thus, Si   represents the rating charging/discharging power.
DISCO

Distribution network Next, the net power gapof the agent with BESS becomes
Pi'  Pi  Pibess , i  N / 0 (5)
Agent 1 Agent n1 Agent n1+1 Agent n1+n2 Agent n1+n2+1 Agent n1+n2+n3
Wind farm 1 ... Wind farm n Solar station ... Solar station Demand aggregator ... Demand aggregator
For the DISCO, a BESS is installed for energy balancing at
BESS of
agent1
BESS of
agent n
BESS of
agent n1+1
BESS of
agent n1+n2
BESS of agent
n1+n2+1
BESS of agent
n1+n2+n3
the substation site. As proposed in [9], the strategy is to track
the forecasted demand profile. The charging/discharging
Power flow Information exchange
signals are set as
Fig.1. Proposed operation framework for DISCOs.
P , S0    P0
P0bess   0 (6)
 DISCO (leader agent)  S0   , else
The leader agent is budget-balanced to the penalty and
where the forecast error of the leader P0 is calculated by
operated as an interface between the follower agents and the
market. The penalty charged by the power market is varied in n

different market mechanisms. In this paper, such penalty is P0   P . Next, the net power gap of DISCO with BESS
i 1
i
'

assumed to be proportional to the energy gap transferred at the

substation according to becomes
0  P0   p (2) P0'  Ptotal
'
 P0bess (7)
where  0 is the penalty cost of the DISCO; P0 is the system where P0'is the forecast error of the leader with BESS. With
forecast error;  p is the penalty electricity price. the installation of BESS, the penalty cost is changed from
eq.(3) to eq.(8).
 Follower agents
In the budget-balanced system, the follower agents are resp Pi'
onsible for compensating the penalty according to their foreca  i'  n
  0' , i  N / 0 (8)
st error,  P i
'

Pi i 1
i  n   0 , i  N / 0 (3)
where  '0 and  i' are the system penalty cost and the penalty
i 1
Pi
cost described to agent i , respectively;  '0 is calculated as
where  i and Pi are the penalty cost and forecast error of P0'   p  t .
agent i , respectively.
To mitigate the risk of penalty in the energy transaction B. Forecast uncertainties
process, the agents have incentives to install BESS. The  Wind speed
integration of BESS provides more choices for the agents and Research has proven that a two-parameter Weibull
the DISCO in an energy market. The agents are able to probability distribution function closely matches the random
balance the real-time energy gap optimally via the energy characteristic of wind speed [15]. The probability density
market or the BESS owned by them. Note that the penalty function is given as:
price in the real-time market is higher than the kv  v 
kv 1
  v kv 
f v  v     exp      (9)
charging/discharging cost of BESS. Therefore, the leader cv  cv    cv  
agent can make a profit from charging/discharging its own
battery to meet the demand gap while the follower agents Given the probability of wind speed forecast error, the wind
power distribution is acquired [16]. The linear transformation
apply the batteries to avoid the risks given by eq. (3). The
is described as
benefit-cost analysis of each agent with BESS is performed as
 w  bw  1
described below. f w  v   fv   (10)
The follower agents perform energy procurement from the  aw  aw
DISCO or sell the excess generation to the DISCO. They face where f v  v  and f w  v  are the forecast error probability
the risk of being levied a penalty as a result of a local forecast
error. To minimize the penalty cost, the agents install their density function (PDF) of wind speed and wind power,
own BESS to track their forecasted energy profile. According respectively; w and v are the wind power and wind speed,
to the battery charging/discharging strategy, respectively ； kv , cv , aw , and bw are all parameters of the
P , Si    Pi probability function.
Pi bess   i (4)  Solar forecast uncertainty
 Si   , else
The uncertainty of solar radiation mainly comes from the
stochastic nature of the weather condition. A cleanness index

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is adopted to address the problem [17][18]. The random
behavior of the clearness index is expressed by a Beta
distribution function.
(ak  bk ) ak 1
f cl  kt   kt  (1  k t )b1 (11)
(ak )(bk )
where f cl  kt  is the PDF of the clearness index; kt is the
clearness; ak and bk are the Beta parameters.
 Load forecast uncertainty
A Gaussian distribution fl  l  is used in this paper to
statistically model the load forecast error [18]. The PDF for a
Gaussian distribution is:
1   l  l  2 
fl  l   exp   2 
2 l2  2 l 
where l and  l are the statistical mean and standard deviation
of the load demand, respectively.
C. Multi-state stochastic model
For calculation simplicity, the continuous forecast error
distributions given by Eqs. (10)-(12) are expressed in a multi-
state model. The energy forecast errors are discretized into
several levels with fixed steps. The probability and cumulative
probability at each level are calculated according to the
probability density functions for each agent. The multi-state
forecast uncertainty model (MSFU) of the agents is expressed
as
M i   j, pi  j  , Pi ( j ); j  1, 2,..., m (13)
where M i is the MSFU of agent i ; m is the state number of the
forecast error in the MSFU; j indicates the discrete forecast
error state and the forecast error of state
by
 2  ji  1 
Pi ( j )    1  Ci
 m  power market or by the BESS located at the substation. The
The probability of each state pi  j  is estimated as
ji
1 2
m to the DISCO by avoiding a penalty. The penalty of the leader
pi  j    f (Pi ) d Pi
ji 1
Pi 1 2 m
To quantify the estimated benefits and cost of the BESS
project, the forecast errors of all agents are modeled in the
MSFU. In this manner, the uncertainties of the system can be
taken into account and be quantified. With the above-
described approach, we can analyze the utility functions of the
agents and optimize their BESS integration strategy.
III. A GAME-THEORETIC APPROACH FOR BESS ALLOCATION
The BESS allocation problem has been solved in a
centralized manner to achieve a global optimal plan in the
previous research for a sole system operator. In this study, the
agents are willing to optimize their own BESS allocation plan
to maximize their own objective functions. It is more practical
to develop the solution method in a distributed manner to
implement the distributed optimization problem and update
the information. The optimization scheme enables each agent
to optimize its BESS installation decision according to both
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the local information and broadcasted information from the
other agents. It is important to guarantee the agents have
incentives to install BESS and declare their true information
during the information updating process. The cost and the
benefits of BESS installation for each agent are analyzed in
this section. In the proposed algorithm, the network model is
neglected and the optimization is performed in a restricted
situation. This assumption is common in a system taking
power market effect into account. Under this assumption, the
location of BESS has not impact on the convexity of the
model. In other word, there is only a single variable for each
agent, namely the total BESS capacity.
A. Cost and benefits analysis
(12)
According to the conclusion stated in report [19], the
battery cost can be represented by the summation of fixed cost
and flexible charging/discharging cost if the BESS is operated
in a reasonable depth of discharge (DOD). Therefore,the
expected hourly BESS charging/discharging cost is expressed
as
 
ci  k fix  Si  kc / d  Si  E Pi bess , i  N (16)
where ci is the expected hourly BESS cost of agent i ; k fix is
the hourly maintenance cost factor; the flexible part is
calculated according to the expected absolute
charging/discharging amount Pi bess and the
charging/discharging cost factor kc / d ; E () is used in this
paper to represent the expectation value. In particular, the
expected BESS cost could be quantified by using the MSFU
model. This quantification is achieved as follows:
 
ci   pi ( j )   k fix  Si  kc / d  Si  Pi bess ( j ) 
m
(17)
j , Pi ( j ) is calculated j 1
where Pi bess ( j ) is the power charging/discharging at state j .
For the DISCO, the total demand gap is balanced in the
(14)
power market balancing cost is charged to the follower agents
with zero income, and the BESS operation could bring benefit
(15)
agent with BESS is  p E (P0') .The power consumption of a
distribution system can be processed as an aggregated demand.
Thus, we assume that the forecast error of DISCO follows
Gaussian distribution as eq. (12) and is not affected by the
individual agent’s forecast error. The utility function of the
DISCO, u0 , is defined as
u0  E (P0')+c0(18)
The billings are settled every day or for a longer time.
Therefore, the penalty charged to the follower agents is
reasonably calculated by the expectation value. The total
balancing cost of the agents charged by the DISCO is
expressed as
  E(P0 ) (19)
where  is the estimated penalty for the leader agent without
BESS.
The estimated penalty cost for each agent can be deduced in
the MSFU model as well according to
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E Pi' (20) peak is around 0 [21-23]. For simplicity, the peaks of PDFs
i    , i  N / 0 used in this paper are 0 and follow certain distribution
  E P 
n
'
i function introduced in the above section.The convexity of the
i 1
payoff functions of the leader agent and follower agents will
where  i is the expected penalty cost of agent i ; E Pi' and be discussed by part A and part B, respectively.
(a) For the leader player, the forecast error PDF follows
  E P  are the expected forecast error of agent i
n
' and all Gaussian distribution. For clearance, we denote x0 , x0' and r0
i
i 1 for the original forecast error, forecast error with BESS and
agents, respectively. The penalty cost of an agent is the BESS power capacity of the leader agent. According to
proportional to its expected forecast error. Therefore, the  0,  r0  x0  r0
utility functions of the follower agents can be expressed as 
eq.(4), we have x0   x0  r0 , x0  r0 . The PDF and
'

total payments ui ,  x  r , x  r
 0 0 0
ui  i +ci
0
(21)
cumulative distribution function (CDF) of the leader agent
B. Non-cooperative game model forecast error are shown in Fig.2. The penalty cost function
with BESS can be expressed as follows.
The above-described distributed optimization problem is
  x
1
modeled as a non-cooperative game for the agents in the  0 (r0 )   p E x0'  '
0 f 0  x0  dx0
system to determine their optimal plans for installing BESS. 1

1) Player: the agents in the distribution system, denoted as a   r0 1 

set of players N  {0,1, 2,..., n} ; among the set of players, there   p     x0  r0  f 0  x0  dx0    x0  r0  f 0  x0  dx0 
 1 r0 
are four types: N  0 represents the distribution company;
  r0  r0

N  {1, 2,..., n1} represent the wind farm players;   0 0 0
 x f  x  dx0   r0 f 0  x0  dx0 
 1 1  (24)
N  {n1  1,..., n1  n2 } represent the solar station players;  p  1 1 
 x0 f 0  x0  dx0  r0 f 0  x0  dx0 
 r0 
N  {n1  n2  1,..., n1  n2  n3} represent the demand players;

where, n1  n2  n3  n .
r0

  r0 
2) Strategy: The decisions of the players determine the    x0 f 0  x0  dx0  r0  F  r0   F  1  
capacity of the BESS. Thus, we define the strategy sets for the  1 
 p  1 
players as S  {S0 , S1 , S2 ,..., Sn } . Constraints reflect the
 x0 f 0  x0  dx0  r0  F 1  F  r0   
technology and the investment limit; thus,the strategies are set 
 r0 
within a reasonable space, Smin  Si  Smax , i  1, 2,..., n ,which
 0 (r0 )  r0 f 0  r0  +r0 f 0  r0   F  r0  
is non-empty, convex, and compact.  p  
3) Payoff functions: The payoff functions of the players are the r0  r0 f 0  r0  +r0 f 0  r0   1+F0  r0   (25)
same as the utility functions presented above. The mappings   p   F0  r0   1+F0  r0  
are expressed as
ui : S0  S1  S2  Sn  for i  0,1, 2,..., n (22)  20 (r0 )
  p  f 0  r0  +f 0  r0  (26)
 2 r0
C. Nash Equilibrium
Where f0 is the forecast error PDF expressed as
The players select the optimal strategies to minimize their
 r   , 2
F0 is the corresponding CDF.
payoff functions. We denote the strategy variables Si* , i  N f 0  r0  
1
exp   0 2 
as the Nash equilibrium [20] of the game if and only if 2 2
0  2 l 
ui (Si* ; S*i )  ui (Si ; S*i ), i  N , Si  0 (23) Then we have f0  r0   0 , f 0  r0   0 for 0  r0  1 . Thus, the
where S are the strategy variables of agents except i at the
*
i
second order derivative of 0 (r0 ) is positive for 0  r0  1 . It
Nash equilibrium. If the players apply the BESS plans at the can be easily deduced that the second order derivative of
Nash equilibrium in this game, no one would benefit by u0  c0 +0 is positive for 0  r0  1 . Base on this result, we can
unilaterally changing the installation plan. The existence and conclude that the payoff function of leader player is strict
uniqueness of the Nash equilibrium of the proposed game are convex within the range of BESS power capacity.
proven as follows.
It should be noted that most of the forecast error
distributions are located within a conditional range and its

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x0  x0'  x0
x0  x0'   r0
Fig.2. PDF and CDF of the leader agent forecast error
(b) For the follower players, the characteristic of the payoff
function depends on the penalty cost. The utility function of eq.
(22) can be rewritten as
ui   
 
E Pi'
   E  P 
E Pi' 
Similar to part (a), we denote xi , xi' and ri for the original
forecast error, forecast error with BESS and BESS power
capacity of the follow agent. Let g (ri ) denote the expected
value of the absolute output error of player i , E Pi' . As a
result, eq.(27) is transformed to
g  ri 
ui  a +b
g  ri   
where a, b are constants larger than 0. The peak of the follower
agents' PDF are all assumed to be 0. The convexity of g  ri 
can be proven as part (a). when the BESS power capacity is
smaller than the maximum output error, eq. (28) is also strictly
convex because the function is monotonically increasing to
g  ri  and g  ri  is strictly convex. This indicates the payoff
functions of the followers are strictly convex. Typical payoff
function curve of the wind farm player is simulated, as shown
in fig. 3.
Fig. 3.Typical payoff function of the player
According to the Theorem 3 [24, 25], the Nash equilibrium
exists and is unique in the proposed game. When the PDF
peak of the forecast error is not 0, represented by a non-zero
value a p , the payoff function is convex for Si  a p . In this
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Transactions on Sustainable Energy
F0  r0 
x0  x0'  r0
F0   r0 
situation, we can set the initial solution of the game within
appropriate range to guarantee the strictly convexity of the
payoff functions. Similar to the non zero peak, we can also
define a BESS capacity range Si  at to deal with the tail
effect. at is a forecast error value where tail effect exists. It is
+ci (27) reasonable that investing a high capacity is not an economic
'
i solution.
D.Dominant strategy
In the proposed optimal BESS planning game, the players
are asked to broadcast their energy capacity, forecasting
  accuracy, and the latest BESS allocation plan. We define the
true information and the declared information as eqs. (29) and
(30), respectively.
I i M i , Si  (29)
(28)
Ii Mˆ , Sˆ 
i i (30)
where I i and Iˆi are the true and declared information of agent
i , respectively; Cˆ i , Mˆ i , and Sˆi are the broadcasted value of
the privacy information.
If the player declares untruthful data or an untruthful plan to
the system, then the other players may be misled and suffer
from loss in the payoff function. The arbitrary information
system will harm the efficiency of the proposed game and
decrease the benefit of some participants. Therefore, it is
important to guarantee that truthful declaration is the dominant
strategy for each player. Vickrey–Clarke–Groves(VCG)
auction guarantees truthfulness[20]. The demonstration of this
dominant strategy is given as follows.
Given a wind farm player and a DISCO, the wind farm can
apply the strategy of over declaration or under declaration on
the demand gap. If the declared demand gap is different to the
true one, then the DISCO has the incentive to change the
BESS capacity in Nash equivalent, i.e., S0 ( Iˆ1 )  S0 ( I1 ) .
* *
However, eq.(23) suggests that u0  S0* ( Iˆ1 )   u0  S0* ( I1 )  .
   
Next, according to the payoff function of the wind farm player
calculated by eq.(21) and eq.(22), we have the following result:
u1  S1* , S0* ( Iˆ1 )   u1  S1* , S0* ( I1 )  (28)
   
Consider the situation that there are other agents in the
system. The over declaration of the concerned agent will lead
to larger capacity installation of the other agents. Intuitively,
the penalty share of the cheating agent will increase. In
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contrast, the under declaration will cause an increase of total distribution system is shown in Fig. 4.
penalty that is obviously also not beneficial to the payoff. TABLE I
The result proves the player cannot gain by cheating in the TYPICAL PARAMETERS OF LEAD-ACID
proposed game. We assume that the players are rational and Item Lead-acid Battery
do not know how many players are taking part in the game. Maximum charging current 0.5 C
Therefore, truthful declaration is a dominant strategy for each k fix 10 $/MWh/hour
player. This proposition guarantees the efficiency of the game kc / d 80 $/MWh
and facilitates the solution algorithm that will be proposed in
the next section. ...
Wind aggregator
(follower player 1)

IV. SOLVING ALGORITHM DISCO

Grid (leader
The proposed battery allocation problem is formed as a player 0)
Demand aggregator
(follower player 3)
multi-player distributed optimization game. The unique Nash

...
equilibrium exists and truthful declaration is the dominant Solar aggregator
(follower player 2)
strategy for each agent. Therefore, the multiply distributed
...
optimization algorithm is suitable for solving the proposed Physic power network Broadcast network
problem. The algorithm finds the Nash equilibrium iteratively Fig.4. 4-player distribution system
using the best response technique [26, 27]. The details are
specified as below: We apply the historical hourly data and the forecast tool to
acquire the forecast error data. According to the probability
Distributed Algorithm distribution function, the fitting functions for wind power,
solar power, and demand are obtained. Next, the multi-state
Step 1: Input the system data and parameters.
stochastic models are calculated for different agents, as shown
Step 2: Initialize the strategy for each agent randomly.
in Fig.5.
Step 3: Search the Nash equilibrium iteratively.
For comparison, we first perform the base scenario with no
Solve the best response of the optimization BESS integration. In this scenario, the DISCO is budget-
problem in turn, namely, for i  0 : n balanced and the expected total penalty cost is $149.52/hour.
Si  arg max ui Si  The expected forecast errors for the wind agent, solar agent
and demand agent are 0.4825, 0.2220, and 0.2520,
Update the self-information and broadcast the
respectively. The penalty cost is shared among these follower
strategy across the system.
agents according to the expected error. Therefore, the
Step 4: Repeat step 3 until no agent declares new strategy. expected payoff values of wind, solar, and demand are
Step 5: Output the strategy vectors as the Nash equilibrium. 75.4237, 34.7027, and 39.3923 $/hour, respectively.
0.2

V.CASE STUDY 0.15

probability

0.1
In this section, we present case studies and assess the
0.05
performance of the proposed BESS allocation method. In our
simulation, the electricity price and battery parameters are set 0
-0.9 -0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
wind foracast error
as in [8]. The historical data were downloaded from website 0.2

[28]. The forecast tool box used for the data process was 0.15
probability

obtained from [29]. 0.1

A. Case A. 0.05

0
The IEEE 11kV, 15-bus radial distribution system applied -0.9 -0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
solar foracast error
in [9] is modified into a system with four agents, namely 0.2

DISCO agent, wind agent, solar agent, and demand agent. The 0.15
probability

wind agent owns two 850kW wind machines and one 800kW 0.1
machine. The fourteen loads are supplied by the demand 0.05
aggregator. The peak demand is 3.14MW. A 1.8 MW solar 0
farm is operated by the solar aggregator. The penalty price is -0.9 -0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2
demand forecast error
0.3 0.4 0.5 0.6 0.7 0.8 0.9

$0.5/kWh. We choose a common lead-acid model of BESS Fig.5. Multi-state stochastic model of different agents in the distribution
designed for energy balancing. The energy capacity to power system
capacity ratio is 2 hours. The battery cost is nearly
After the calculation in the base scenario, the proposed
proportional to the power rating and the capacity rating of the
distributed optimization algorithm is performed for BESS
battery. The power capacity of energy storage station is a
allocation. The distributed optimization is conducted from the
major concern in this work. The other index of ESS is
first agent to the last agent. At each agent’s turn, it will
produced according to the capacity which is proportional to
optimize the BESS size to maximize its utility. Next, the
the ones of standard cell. The charging current, cost
updated information will be broadcast to the other agents and
parameters are shown in Table I. The structure of this

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the algorithm continues until no agent presents a new plan. and 1 leader agent (i.e., the DISCO). The energy capacities of
The utility of each agent is fuzzified to show the convergence different agents are chosen from the following set
of the proposed algorithm clearly [30]. The fuzzy rule is 1,0.5,1.5wind , 0.5,0.7,1solar , 0.3,0.5,0.7,0.8,1demand . As
shown as follows:
the number of agents increases, the calculation of the expected
ui  S   ui (S * ) total net demand becomes very time consuming. To reduce the
ui (S )  fori  0,1, 2,3 (29)
uimax  uimin computation burden, we can use the observation that the errors
of the same resource are positively correlated. This
From fig.6, the steady state is achieved after 12 iterations. assumption is correct in a small distribution system due to the
At steady state, the Nash equilibrium is formed for every similar weather condition. The total BESS integration plan
participating agent; at this state, no agent can benefit from changes with the optimization iteration until the Nash
changing the plan. equilibrium is reached. The curve of the convergent process is
shown in Fig, 7. From the curve, we can find that the
Wind agent’s turn
0.4
convergent process only requires 24 iterations. The optimal
0.2
BESS allocation results of the Nash equilibrium are given in
0
Table IV. The cost and benefits comparisons of the follower
Fuzzfied utility

-0.2

-0.4 Convergent state agents are shown in Fig.8. The results show that not every
-0.6
agent can make a profit through the BESS installation.
Disco agent
-0.8 Total However, if the agent does not participate in the proposed
Demand agent
-1 Wind agent BESS allocation scheme, it will face higher risk in the energy
Solar agent
0 2 4 6 8 10 12 14 16 18
transaction processes. This phenomenon, caused by the
Iteration Number
competition effect among agents, is an important issue in the
Fig.6. Fuzzified utility of different agents through the optimization process proposed BESS allocation method. The agent has incentive to
TABLE II
NASH EQUILIBRIUM OF BESS ALLOCATION
participate because the BESS installation of other agents could
Based Scenario Optimal Result increase its transaction risk in power market. In other word,
BESS the utility improvement of an agent without BESS could be
Item Energy/Power negative which provides incentive for the participant to adopt
Utility($/hour) Payoff($/hour)
Capacity it.
(MWh/MW)
7
Leader
DISCO 0 0.88/0.44 5.282
Agent 6

Wind agent 75.4237 1.62/0.81 73.6236

Follower 5
Solar agent 34.7027 0.75/0.375 33.3845 Convergent state
Capacity (MWh)

Agents
Demand agent 39.3923 0.75/0.375 37.5528 4

TABLE III 3
DETAIL OPERATION COST WITH BESS OF DIFFERENT AGENTS
2

Penalty Cost Charging/Discharging BESS Fix Cost

Item 1 Total BESS capacity
($/hour) Cost ($/hour) ($/hour)
0
DISCO -32.2735(profit) 12.9094 8.8 5 10 15 20
Iteration
25 30 35

Wind agent 19.3816 38.042 16.2 Fig.7. Fuzzified utility of different agents through the optimization process.
Solar agent 7.7845 18.1 7.5
Demand agent 10.2528 19.8 7.5 TABLE IV
NASH EQUILIBRIUM OF BESS ALLOCATION
The utility improvements and BESS allocation results are Optimal Result
listed in Table II. Compared with the base scenario, all the Utility
Item
BESS Energy Capacity (MWh) Improvement
agents can benefit from the BESS integration. The details of ($/hour)
the utility are shown in Table III. Although the cost of BESS Leader
is very high, the penalty saving is adequate to compensate for DISCO 1.7 14.2056
Agent
the charging/discharging cost. As the technology development 1 0.5 0.215
of BESS progresses, the cost will further decrease, thereby Wind agent 2 0.2 -0.0821
enhancing the economic feasibility of the proposed method. 3 0.7 0.1329
Moreover, the total BESS installation capacity is higher than 1 0.3 0.0959
Solar agent 2 0.4 0.1668
the result in our previous work [9]. This difference shows that
3 0.5 0.3546
the Nash equilibrium of noncooperative game may not be the 1 0.1 0.0039
global optimal result. 2 0.2 0.1088
Demand
3 0.3 0.2137
B. Case B. agent
4 0.5 0.5245
A more comprehensive case study is performed in this part 5 0.4 0.7482
to test the feasibility and convergence rate of the proposed
BESS allocation method for multiple agents. We assume there
are 12 agents, 3 wind agents, 3 solar agents, 5 demand agents,

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30 For analysis the impact of BESS cost on the optimal BESS

Penalty saving
BESS fix cost
investment equilibrium, three BESS types are chosen and the
25
Charging/discharging cost
BESS cost are set accordingly. The first two types of BESS
20 are lead-acid battery with different rated charging current
Cost & Benefit ($)

15
10
5
0 different BESS type are compared in Table VII. It is obvious
1 2 3 4
Fig.8. Cost and benefit of a follower agent at the Nash equilibrium
C. Sensitivities analysis
In order to show the effeteness of the proposed method, the
above two case studies are performed in a extreme scenario
with high forecast errors and penalty price. As the penalty
price, forecast error as well as BESS unit cost are important
exogenous baseline factors that construct the environment for
(0.5C, 1C), the third BESS is Lithium-Ion with 0.5C charging
current. The fixed costs k fix are 10, 15, 20 $/MWh/h and the
operation cost are 80, 80, 150 $/MWh. The simulation results
are shown in Fig. 10. The utility improvements of agents with
5 6 7 8 9 10 11
Agent that the BESS cost is a great barrier, and it is important to
optimal allocate BESS capacity to the agents. In the scenario
with Lithium-Ion battery, the investment of BESS is not
profitable. Along with development of battery technology, the
costs of battery will decrease, which makes the BESS more
feasible for reducing energy transaction risk.
2
Lead-acid 0.5C
Lead-acid 1C
Li-ion 0.5C

BESS Capacity (MWh)

1.5

agents to make investment decisions, the sensitivities analysis

are performed as follows: 1

 Forecast error
For evaluating the impacts of forecast errors on the BESS 0.5

investment decision, three scenarios are constructed, i.e. high

forecast error, medium forecast error and low forecast error. 0
Wind Solar Demand Disco
The forecast error percentages of the agents in different Fig.9. Optimal BESS allocations in different BESS cost scenarios
scenarios are shown in Table V and each agent follows the TABLE VII
same PDF in different scenarios. The other parameters are the UTILITY IMPROVEMENT COMPARISONS OF DIFFERENT BATTERY COST ($/HR)
same as case A. The simulation results under these scenarios Battery Cost Scenario
are illustrated in Fig. 9. The utility improvements are Agent lead-acid(0.5C) Lithium-
lead-acid(1C)
compared in Table VI. It can be seen from Fig. 9 the impacts (reference) Ion(0.5C)
Wind agent 1.80 1.43 0
of forecast accuracy are obvious. With advanced forecast Solar agent 1.32 1.29 0
technology, the forecast accuracy could be enhanced and the Demand agent 1.84 1.44 0
required BESS capacity is reduced accordingly.
 Penalty price
TABLE V
As stated before, the penalty is an important factor affecting
FORECAST ERROR PERCENTAGES IN DIFFERENT SCENARIOS
the BESS invest plan, so different penalty prices are chosen
Scenario High Medium Low
Wind agent 19.3% 9.65% 4.83% and the simulation results with  p =0.5$/kWh,  p =0.4$/kWh
Solar agent 22.2% 11.1% 5.55% and  p =0.3$/kWh under case A are shown in Fig. 10. The
Demand agent 16.8% 8.4% 4.2%
utility improvements of different agents in three penalty price
2
High forecast error scenarios are shown in Table VIII. It can be seen that the
Medium forecast error BESS investment is reduced with the decrease of  p , due to
BESS Capacity (MWh)

1.5 Low forecast error

low transaction risk would reduce the BESS investment
1
motivation. Hence, market mechanism in distribution level
should be well designed to encourage the agents to participate
0.5
in demand response project with BESS.
2
High penalty price
0 Medium penalty price
Wind Solar Demand Disco
BESS Capacity (MWh)

1.5 Low penalty price

Agent
Fig.9. Optimal BESS allocations in different forecast scenarios
TABLE VI 1
UTILITY IMPROVEMENT COMPARISONS OF DIFFERENT FORECAST ERROR ($/HR)
Forecast Error Scenario
Agent 0.5
High Medium Low
Wind agent 1.80 1.22 1.09
Solar agent 1.32 1.08 0.97 0
Wind Solar Demand Disco
Demand agent 1.84 1.27 1.11 Agent

 Battery Cost Fig.11. Optimal BESS allocations in different penalty price scenarios

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TABLE VIII
UTILITY IMPROVEMENT COMPARISONS OF DIFFERENT PENALTY PRICE ($/HR)
Penalty Price Scenario
Agent
High Medium Low
Wind agent 1.80 1.32 1.03
Solar agent 1.32 1.01 0.88
Demand agent 1.84 1.40 1.05
VI. CONCLUSION
An advanced BESS allocation method was proposed based
onthe interactions among multiple agents during an energy
transaction process in a distribution system. In this method,
the agents have incentives to optimize their BESS installation
plan to maximize the payoff. Through a game-theoretic
approach, the agents reach a Nash equilibrium of BESS
installation where no agents can benefit from changing the
declaration plan. The results proved the economic feasibility
and convergence of the proposed method. The transaction
risks stemming from the forecast errors during energy
transaction can be mitigated by optimal BESS allocation,
thereby significantly improving the dispatch ability of
renewable energy. The advantages of the proposed method
over previous battery allocation methods are 1) extension of
the energy transaction mechanism to the distribution system to
enable the competition and cooperation of the energy agents in
the electricity market; 2) application of game theory to
investigate the behaviors of multiple agents and obtain an
optimal solution at the Nash equilibrium; and 3) an efficient
declaration system and stable optimal results for the agents.
With the integration of BESS, agents can mitigate the risk and
obtain more profits in the energy transaction process as the
system integrates more intermittent renewable energy.
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BIOGRAPHIES
Yu Zheng (M’15) obtained his B.E and Ph. D degrees from Shanghai Jiao
Tong University, China and The University of Newcastle, Australia, in 2009
and 2015, respectively. He is now a senior research assistant at the University
of Hong Kong, Hong Kong. His research interests include power electronic
applied in power system, power system planning, and smart grid.
David J. Hill (S’72–M’76–SM’91–F’93–LF’14) received the Ph.D. degree in
electrical engineering from the University of Newcastle, Australia, in 1976.
He holds the Chair of electrical engineering in the Department of Electrical
This article has been accepted for publication in a future issue of this journal, but has not been fully edited. Content may change prior to final publication. Citation information: DOI 10.1109/TSTE.2017.2705838, IEEE
Transactions on Sustainable Energy

and Electronic Engineering, University of Hong Kong, Hong Kong. He is also

a part-time Professor of electrical engineering in the University of Sydney,
Australia.
During 2005–2010, he was an Australian Research Council Federation
Fellow at the Australian National University. Since 1994, he has held various
positions at the University of Sydney, Australia, including the Chair of
Electrical Engineering until 2002 and again during 2010–2013 along with an
ARC Professorial Fellowship. He has also held academic and substantial
visiting positions at the universities of Melbourne, California (Berkeley),
Newcastle (Australia), Lund (Sweden), Munich, and in Hong Kong (City and
Polytechnic). His general research interests include control systems, complex
networks, power systems, and stability analysis. His work is now mainly on
control and planning of future energy networks and basic stability and control
questions for dynamic networks.
Prof. Hill is a Fellow of the Society for Industrial and Applied Mathematics,
Philadelphia, PA, USA, the Australian Academy of Science, and the
Australian Academy of Technological Sciences and Engineering. He is also a
Foreign Member of the Royal Swedish Academy of Engineering Sciences.

Zhao Yang Dong (M’99–SM’06–F’17) obtained his Ph.D. degree from the
University of Sydney, Australia in 1999. He is now a Professor and the Head
of the School of Electrical and Information Engineering, University of Sydney,
Australia. He was previously the Ausgrid Chair and Director of the Center for
Intelligent Electricity Networks (CIEN), The University of Newcastle,
Australia, and is now a Conjoint Professor there. He also held academic and
industrial positions with Hong Kong Polytechnic University and Transend
Networks (now TASNetworks), Tasmania, Australia. His research interest
includes smart grid, power system planning, power system security, load
modeling, electricity market, and computational intelligence and its
application in power engineering. Prof. Dong is an editor of IEEE
Transactions on Smart Grid, IEEE Transactions on Sustainable Energy, IEEE
Power Engineering Letters, and IET Renewable Power Generation.

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