Impacts of Strategic Behavior and Consumer Requirements on the Promise of Demand Response

Abstract

Demand response (DR) is envisaged to be of significance for enhancing the flexibility of power systems. The distributed nature of demand-side resources necessitates the need of an aggregator to represent the flexible demand in the electricity market. This paper presents a bilevel optimization model considering the optimal operation of a strategic aggregator in a day-ahead electricity market. Additionally, consumers’ requirements in terms of comfort satisfaction and cost reduction are considered by integrating detailed demand models and retail contract constraints. The results on the considered test system reveal that centralized optimization models would tend to over-estimate the capabilities of DR in an electricity market with strategic participants. Also, the flexibility value of DR for the power system and the profitability of the aggregator are significantly dependent on the retail contracts between the aggregator and the consumers, highlighting the need for careful contract design