Mechanism Design for Demand Response Programs

Demand Response (DR) programs serve to reduce the consumption of electricity at times when the supply is scarce and expensive. The utility informs the aggregator of an anticipated DR event. The aggregator calls on a subset of its pool of recruited agents to reduce their electricity use. Agents are paid for reducing their energy consumption from contractually established baselines. Baselines are counter-factual consumption estimates of the energy an agent would have consumed if they were not participating in the DR program. Baselines are used to determine payments to agents. This creates an incentive for agents to inflate their baselines. We propose a novel self-reported baseline mechanism (SRBM) where each agent reports its baseline and marginal utility. These reports are strategic and need not be truthful. Based on the reported information, the aggregator selects or calls on agents to meet the load reduction target. Called agents are paid for observed reductions from their self-reported baselines. Agents who are not called face penalties for consumption shortfalls below their baselines. The mechanism is specified by the probability with which agents are called, reward prices for called agents, and penalty prices for agents who are not called. Under SRBM, we show that truthful reporting of baseline consumption and marginal utility is a dominant strategy. Thus, SRBM eliminates the incentive for agents to inflate baselines. SRBM is assured to meet the load reduction target. SRBM is also nearly efficient since it selects agents with the smallest marginal utilities, and each called agent contributes maximally to the load reduction target. Finally, we show that SRBM is almost optimal in the metric of average cost of DR provision faced by the aggregator

A Minimal Incentive-based Demand Response Program With Self Reported Baseline Mechanism

In this paper, we propose a novel incentive based Demand Response (DR) program with a self reported baseline mechanism. The System Operator (SO) managing the DR program recruits consumers or aggregators of DR resources. The recruited consumers are required to only report their baseline, which is the minimal information necessary for any DR program. During a DR event, a set of consumers, from this pool of recruited consumers, are randomly selected. The consumers are selected such that the required load reduction is delivered. The selected consumers, who reduce their load, are rewarded for their services and other recruited consumers, who deviate from their reported baseline, are penalized. The randomization in selection and penalty ensure that the baseline inflation is controlled. We also justify that the selection probability can be simultaneously used to control SO's cost. This allows the SO to design the mechanism such that its cost is almost optimal when there are no recruitment costs or at least significantly reduced otherwise. Finally, we also show that the proposed method of self-reported baseline outperforms other baseline estimation methods commonly used in practice

Trading Carbon into Agriculture: making it happen

With agriculture occupying approximately sixty per cent of Australia’s land surface, policy makers, scientists and land managers are becoming increasingly interested in opportunities to sequester greenhouse emissions through land use change. The announcement of the Labor Government’s Carbon Farming Initiative brings Australian agriculture a step closer to participating in recognised domestic and international climate change mitigation action. In this paper, the costs and opportunities for carbon sequestration options under the Carbon Farming Initiative are assessed. The following section discusses the substantial hidden costs that may be associated with an offset trading scheme and potential for these costs to substantially shrink the size of the market. The paper concludes by presenting some potential solutions to the challenges raised and identifies some critical questions for policy makers.carbon trading, Resource /Energy Economics and Policy,

Laying the Foundation: An Analytical Tool for Assessing Legal and Institutional Readiness for PES

This booklet has been created as an initial resource for public sector officials interested in fostering an environment in which PES transactions can occur. While PES legal and policy readiness is likely to look very different from one country to another -- depending on legal frameworks, as well as historical and current circumstances and pressures -- understanding policy options for getting ready for PES transactions is an important first step towards assessing readiness within a specific national and subnational context.This booklet offers an analytical framework for assessing legal and institutional readiness for PES transactions. It is divided into three sections based on timing and the order of addressing issues, with an eye to what will be most important to investors and buyers in payment for ecosystem services agreements. Specifically, the first level of preparing for PES agreements should be ensuring that fundamental or threshold conditions are in place for buyers to feel that there is sufficient stability in place to consider entering in these business arrangements. The second level of preparedness, while important for well-functioning PES, may be developed adaptively as needs and options become clearer via PES experience on the ground. Finally, level three includes non-urgent aspects that may be important to streamline or scale up PES, depending on the particular circumstances

Joint Implementation in Climate Change Policy

The textbook economists' model of a tradable permit system cannot usually be applied perfectly at either the domestic or international scale because of the difficulty and/or expense of defining allocations to and monitoring emissions of some groups, as well as for political reasons. It may be impossible to bring these groups fully into a tradeable permit system but it is often possible to find compromise solutions to gain some benefits from trade. This paper explores this problem in the context of the Joint Implementation mechanism associated with the Kyoto Protocol. This paper starts by outlining the current international rules governing Joint Implementation. We provide a summary of key jargon for those who are unfamiliar with the complex Kyoto language. We then discuss two key international issues that are still unresolved: baseline development and monitoring. We then turn to domestic governance of Joint Implementation and how the private sector might engage in Joint Implementation. At this point we consider how Joint Implementation fits within the suite of Kyoto flexibility mechanisms, why sellers and buyers might choose to engage in each, and how the different mechanisms might interact in the market for tradeable units. We conclude with some thoughts about productive directions for future research.Climate, Joint Implementation, tradeable permits, emissions trading

Online Learning for Incentive-Based Demand Response

In this paper, we consider the problem of learning online to manage Demand Response (DR) resources. A typical DR mechanism requires the DR manager to assign a baseline to the participating consumer, where the baseline is an estimate of the counterfactual consumption of the consumer had it not been called to provide the DR service. A challenge in estimating baseline is the incentive the consumer has to inflate the baseline estimate. We consider the problem of learning online to estimate the baseline and to optimize the operating costs over a period of time under such incentives. We propose an online learning scheme that employs least-squares for estimation with a perturbation to the reward price (for the DR services or load curtailment) that is designed to balance the exploration and exploitation trade-off that arises with online learning. We show that, our proposed scheme is able to achieve a very low regret of $\mathcal{O}\left((\log{T})^2\right)$ with respect to the optimal operating cost over $T$ days of the DR program with full knowledge of the baseline, and is individually rational for the consumers to participate. Our scheme is significantly better than the averaging type approach, which only fetches $\mathcal{O}(T^{1/3})$ regret

Evaluation of (non-sink) AIJ projects in developing countries (Ensadec)

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Carbon markets, institutions, policies, and research

The scale of investment needed to slow greenhouse gas emissions is larger than governments can manage through transfers. Therefore, climate change policies rely heavily on markets and private capital. This is especially true in the case of the Kyoto Protocol with its provisions for trade and investment injoint projects. This paper describes institutions and policies important for new carbon markets and explains their origins. Research efforts that explore conceptual aspects of current policy are surveyed along with empirical studies that make predictions about how carbon markets will work and perform. The authors summarize early investment and price outcomes from newly formed markets and point out areas where markets have preformed as predicted and areas where markets remain incomplete. Overall the scale of carbon-market investment planned exceeds earlier expectations, but the geographic dispersion of investment is uneven and important opportunities for abatement remain untapped in some sectors, indicating a need for additional research on how investment markets work. How best to promote the development and deployment of new technologies is another promising area for study identified in the paper.Carbon Policy and Trading,Energy and Environment,Environment and Energy Efficiency,Climate Change,Transport and Environment