Distributed Solution Approach for a Stackelberg Pricing Game of Aggregated Demand Response

Abstract

Demand-side management is a fundamental up-to-date strategy that transforms the traditional power grid to a modern smart grid where the flexible pricing mechanisms play a critical role in its successful implementation. In this paper, the pricing-demand response between a distribution system operator (DSO) and load aggregators (LAs) is modeled as a Stackelberg game, where the DSO is the price maker that adjusts its strategy based on observed responses from LAs. With the concerns of computational cost and privacy protection, two distributed solution approaches, particle swarm optimization and pattern search algorithm, are investigated and compared with the classical centralized backward induction approach. Numerical results on a small case study demonstrate the effectiveness of the proposed distributed solution approaches in leveraging flexible demand response potential.