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Pricing flexibility of shiftable demand in electricity markets

Werner, Lucien and Wierman, Adam and Low, Steven H. (2021) Pricing flexibility of shiftable demand in electricity markets. In: e-Energy '21: Proceedings of the Twelfth ACM International Conference on Future Energy Systems. Association for Computing Machinery , New York, NY, pp. 1-14. ISBN 978-1-4503-8333-2.

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Enabling participation of demand-side flexibility in electricity markets is key to improving power system resilience and increasing the penetration of renewable generation. In this work we are motivated by the curtailment of near-zero-marginal-cost renewable resources during periods of oversupply, a particularly important cause of inefficient generation dispatch. Focusing on shiftable load in a multi-interval economic dispatch setting, we show that incompatible incentives arise for loads in the standard market formulation. While the system's overall efficiency increases from dispatching flexible demand, the overall welfare of loads can decrease as a result of higher spot prices. We propose a market design to address this incentive issue. Specifically, by imposing a small number of additional constraints on the economic dispatch problem, we obtain a mechanism that guarantees individual rationality for all market participants while simultaneously obtaining a more efficient dispatch. Our formulation leads to a natural definition of a uniform, time-varying flexibility price that is paid to loads to incentivize flexible bidding. We provide theoretical guarantees and empirically validate our model with simulations on real-world generation data from California Independent System Operator (CAISO).

Item Type:Book Section
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Low, Steven H.0000-0001-6476-3048
Additional Information:© 2021 Copyright held by the owner/author(s). This work is licensed under a Creative Commons Attribution International 4.0 License. Published: 22 June 2021. This work was supported by VMWare and NSF Grants CNS-2105648, AitF-1637598, CNS-1518941, NSF ECCS 1931662, and by the Resnick Sustainability Institute at Caltech. We thank the anonymous reviewers for their careful reading of this paper and for their insightful suggestions.
Group:Resnick Sustainability Institute
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Resnick Sustainability InstituteUNSPECIFIED
Subject Keywords:electricity markets, demand response, mechanism design, incentives, flexibility, shiftable demand
Record Number:CaltechAUTHORS:20210629-211519470
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Official Citation:Lucien Werner, Adam Wierman, and Steven H. Low. 2021. Pricing flexibility of shiftable demand in electricity markets. In The Twelfth ACM International Conference on Future Energy Systems (e-Energy ’21), June 28-July 2, 2021, Virtual Event, Italy. ACM, New York, NY, USA, 14 pages. 1145/3447555.3464847
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:109657
Deposited By: Tony Diaz
Deposited On:29 Jun 2021 22:32
Last Modified:29 Jun 2021 22:32

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