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

Rapid growth of large loads led by data centers is straining grid capacity. These loads increasingly accept curtailment risk through non-firm interconnection agreements to gain faster grid access, expanding the pool of consumers subject to mandatory disconnection during supply shortfalls. Yet, blunt rules assign curtailment without reference to the wide variation in the value consumers place on avoiding curtailment, often captured by the value of lost load (VOLL). This paper introduces the network-constrained Curtailment Credit Market (CCM), a mechanism in which agents submit bids that determine bilateral credit flows, subject to transmission network constraints. We prove that the bilateral credit flow representation can reach every curtailment allocation available to an omniscient central planner (feasible-set equivalence). Under truthful bidding, the CCM achieves the planner's total value of served load. The CCM clearing problem is a linear program. When embedded in a strategic bidding model, where an upper-level agent anticipates the CCM clearing outcome, the resulting bilevel problem admits an exact single-level mixed-integer linear program (MILP), solved in 0.009 to 0.034 seconds on the reported test systems. Numerical experiments on the three test systems validate the mechanism at increasing scale and complexity. A 3-bus illustrative network isolates the core trading logic, the IEEE 24-bus reliability test system provides a standard benchmark, and a reduced New York (NY) grid captures coordination across NY load zones. Our simulations show that the CCM increases the total value of served load by 1.41 to 1.83 times relative to pro-rata curtailment. On the three test systems examined here, no participant is worse off under incentive-compatible benchmark payments than under the administrative baseline.