A Market for Retail Electric Provider Based Demand Response

Abstract

Deregulated electricity markets operate under the auspices of an Independent System Operator (ISO), which ensures the balance of supply and demand at all times in the most economical manner. Retail Electric Providers (REPs), who purchase electricity to serve residential and medium-scale commercial loads, are typically the largest bidders on the demand side in such marketplaces. Price peaks occur when supply is constrained, but demand is large. Many ISOs conduct Demand Response (DR) programs to reduce demand at peak times to ensure grid stability and long term sustainability. Despite having high demands and the potential to attain reductions through end-user incentive programs, REPs are typically not allowed to participate in such DR markets, since it is hard to determine their true baseline demand, and whether they have actually reduced the load on the grid. Our goal is to design and analyze a DR market for REP participation. We propose a two-stage market under which REPs indicate their baseline usages in the first stage, and a random subset of them are chosen by the ISO to participate in a DR market to attain target reductions in the second stage. We show that when the second stage is conducted in the manner of a reversed uniform price auction, we can ensure that truthful baseline declarations constitute a Nash equilibrium for REPs. Furthermore, the market can be sustained via taxing the REP profit engendered by lower prices. We conduct a data-driven numerical study to illustrate the value of our system.