The Potential Welfare Gains from Curtailment Trading Under Non-Firm Interconnection

Abstract

Rapid growth of large loads, especially data centers, is straining grid capacity and increasing interest in non-firm interconnection agreements that exchange faster grid access for curtailment exposure. This shift creates opportunities for differentiated reliability, where curtailment is allocated according to the value consumers place on uninterrupted service. This value is often expressed through the value of lost load (VOLL), an estimate of the cost a consumer bears for unserved energy. Because VOLL differs by more than a hundredfold across customer classes, pro-rata allocation, which cuts every load by the same proportion, ignores variation that could be leveraged to improve grid utilization. This paper introduces the network-constrained Curtailment Credit Market (CCM), a mechanism that lets one curtailable load pay another to take on part of its curtailment obligation. In this market, a high-VOLL load can reduce its own interruption by paying a lower-VOLL load to absorb additional curtailment. Crucially, the CCM clears while enforcing transmission limits. We prove that the CCM can implement every curtailment pattern available to an idealized planner that knows each load's VOLL and assigns curtailment directly. If agents report true lost-load values, CCM clearing attains the planner's total value of served load, the highest value achievable under network constraints. We evaluate the CCM on three test networks: a 3-bus network, the IEEE 24-bus network, and a reduced New York grid spanning multiple load zones. Across these networks, the CCM raises the total value of served load by 1.41 to 1.83 times relative to pro-rata curtailment.