Optimal electricity demand response contracting with responsiveness incentives
Dylan Possama\"i and
Papers from arXiv.org
Despite the success of demand response programs in retail electricity markets in reducing average consumption, the random responsiveness of consumers to price event makes their efficiency questionable to achieve the flexibility needed for electric systems with a large share of renewable energy. The variance of consumers' responses depreciates the value of these mechanisms and makes them weakly reliable. This paper aims at designing demand response contracts which allow to act on both the average consumption and its variance. The interaction between a risk--averse producer and a risk--averse consumer is modelled through a Principal--Agent problem, thus accounting for the moral hazard underlying demand response contracts. We provide closed--form solution for the optimal contract in the case of constant marginal costs of energy and volatility for the producer and constant marginal value of energy for the consumer. We show that the optimal contract has a rebate form where the initial condition of the consumption serves as a baseline. Further, the consumer cannot manipulate the baseline at his own advantage. The second--best price for energy and volatility are non--constant and non--increasing in time. The price for energy is lower (resp. higher) than the marginal cost of energy during peak--load (resp. off--peak) periods. We illustrate the potential benefit issued from the implementation of an incentive mechanism on the responsiveness of the consumer by calibrating our model with publicly available data. We predict a significant increase of responsiveness under our optimal contract and a significant increase of the producer satisfaction.
New Economics Papers: this item is included in nep-cta, nep-ene and nep-reg
Date: 2018-10, Revised 2019-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
http://arxiv.org/pdf/1810.09063 Latest version (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1810.09063
Access Statistics for this paper
More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().