Negotiation Decision between Manufacturer and System Operator on the Electric Energy Demand Response Program

Abstract

In the electricity market, the imbalance issues between the demand and supply have been an ongoing challenge, especially during the on-peak period. Generally, the system operator adopts the demand response programs: the price-based and incentive-based program, to promote the manufacture decrease the demand during the on-peak period. However, as the manufacturer’s consumption pattern varies from the load curtailment strategy to the load deferral strategy, the system operator should set appropriate price or rebate levels to face the manufacturer’s different choices. The manufacturer announces the portion of on-peak demand for demand response program as well as the choice of the energy consumption patterns in advance. Moreover, the system operator (she) decides the price or rebate level accordingly. To analyze the negotiation process, we formulate a Stackelberg game, where the manufacturer, acting as the leader and the system operator is the follower. The results show that the incentive-based program is more useful to promote the manufacturer to provide a higher portion to the demand response program. However, no dominated program ensures higher profit for the system operator or the less cost for the manufacturer. So, it is the unit shifting cost and customer’s sensitivity to the rebate level that determines the system operator’s preference.