Abstract
The rapid growth of Distributed Energy Resources (DERs) in distribution networks is exposing a critical gap in electricity market design: existing models aggregate distribution grids into single nodal injections at transmission buses, systematically discarding the voltage constraints, reactive power coupling, and internal congestion signals that determine true locational value. Without accurate price propagation across the TSO–DSO interface, flexibility resources remain undervalued, investment signals are distorted, and welfare losses grow with DER penetration. This paper addresses the problem of price-preserving aggregation through a fundamental approach focusing on its development in the theory of spot pricing of electricity and Optimal Power Flow (OPF) problems. We organize existing approaches around the distinction between feasibility-preserving and price-preserving aggregation, and define price-propagation conditions via interface dual variables. The review highlights that no existing aggregation method simultaneously guarantees feasibility and nodal price equivalence: feasibility envelopes constrain the dispatch space but carry no dual information, while simplified OPF models neglect pricing of ancillary services, which are needed for a price-preserving aggregation. We formalize this gap through a nodal price deviation metric and argue that aggregate welfare metrics are insufficient proxies for locational signal accuracy. Finally, we present a conceptual framework for price-preserving aggregation of distribution grids in relaxed ACOPF-based market models.