IEEE Power & Energy Magazine - May/June 2016 - 65

One vision is based on a centralized, whole-system
optimization performed by the TSO, which may also operate
wholesale spot markets as an ISO or RTO.

for services DERs can provide to the DSO to support reliable system operation or to defer investment in distribution
infrastructure, as well as peer-to-peer transactions in which
DERs provide services to end-use customers or other DERs.
Dispatch of DERs for transmission-level and wholesale market services would come primarily from the TSO, however,
because the DSO's operational role over DERs would be limited to instructions or control signals needed to maintain distribution system reliability while supporting DER wholesale
market participation. It may come as a surprise, but we will
see that the layered optimization vision described next could
also support the full range of DER transactions, so this aspect
should not be a main distinguishing feature of the two visions.

The Layered Decentralized Optimization
The layered optimization paradigm represents a substantial
break from today's models of DER participation in the future
grid and the wholesale market. Instead of numerous DERs
and DER aggregations bidding directly into the wholesale
market and being scheduled and dispatched by the ISO, the
DSO would aggregate all DERs within each local distribution area (LDA), including DERs that are aggregated into
virtual resources by third-party aggregators, where an LDA is
defined as the distribution infrastructure and connected DERs
and end-use customers below a single transmission-distribution (T-D) interface substation or LMP pricing node. The total
DSO would then provide a single bid to the wholesale market
at the T-D interface, reflecting the net aggregated needs and
capabilities of all resources, customers, and marketers within
the LDA to buy or sell energy and to offer capacity and ancillary services to the transmission grid.
The TSO would then optimize its system only to balance net interchanges at each T-D substation, without
requiring visibility into the distribution infrastructure or
specific DERs in any given LDA. When the ISO clears
the market bid of the DSO and issues a dispatch or control
signal based on that bid, the DSO determines how best to
utilize the DERs within the LDA to respond to the dispatch
while coordinating other DER operations and grid needs
to maintain reliability and meet customer demands. Thus
the DSO would take on responsibility and accountability
to maintain real-time supply-demand balance within each
LDA, relying on internal DERs as well as interchange with
the transmission system or wholesale market.
Regions considering the layered optimization will typically feature strong customer interest in adopting DERs
may/june 2016

and policies that support DER adoption. Supporting policies would include streamlined interconnection processes
that are not prohibitively costly and revenue opportunities
for DERs and DER aggregators on both the customer side
and the utility side of the distribution system. These factors
would, in turn, provide two conditions needed for successful
implementation of the layered or total DSO paradigm. First,
the LDA would need sufficient liquidity and distributed
resource diversity to enable the DSO to optimize the local
system supply-demand balance. Second, the DSO would
have to provide an open access distribution-level market
that would aggregate DER offers to the wholesale market,
obtain services from qualified DERs to support distribution
system operations, and enable peer-to-peer transactions
within a given LDA and potentially even across LDAs. The
layered paradigm thus requires a regulatory framework
that will ensure transparency and nondiscrimination in the
DSO's planning, nonwires alternative sourcing, and operating decisions.

Insights from Grid Architecture
Grid architecture, for purposes of this article, is the application of the methodologies and tools of system architecture
to the design of the future high-DER electricity system. As
such, grid architecture insists on a whole-system view that
places organizational structure questions, like comparing
the two paradigms described above, into a larger context
that includes energy and capacity market design, business
models, regulatory frameworks, control engineering, communications, and data management.
Grid architecture offers some important insights that point
to the layered optimization paradigm as the preferred design
for the high-DER T-D interface. The first is the problem of
tier bypassing, which occurs when two or more system components have multiple structural relationships with conflicting control objectives. In the electric system, this can lead to
behaviors that conflict with reliable system operation. Case in
point, under the grand optimization paradigm, DERs in the
wholesale market have a market relationship with the ISO that
bypasses the electrical interrelationship with the DSO that
must respect distribution grid operational and safety considerations. This is reminiscent of the California ISO's original
zonal market design, whose forward markets ignored intrazonal constraints and cleared energy transactions that were
not feasible on the grid and had to be unwound in real time.
The layered paradigm precludes such tier bypassing.
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Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - May/June 2016

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