A Game-Theoretic Framework for Multi-Period-Multi-Company Demand Response Management in the Smart Grid

TL;DR

This paper introduces a game-theoretic multi-period demand response framework in the smart grid, modeling interactions between companies and consumers, providing closed-form solutions, and demonstrating benefits over single-period models.

Contribution

It develops a novel multi-period multi-company demand response model using game theory, with analytical solutions and a distributed algorithm, enhancing understanding of strategic interactions in smart grids.

Findings

Unique equilibrium strategies for companies and consumers.

Potential energy savings of up to 30%.

Low volatility in equilibrium prices.

Abstract

By utilizing tools from game theory, we develop a novel multi-period-multi-company demand response framework considering the interactions between companies (sellers of energy) and their consumers (buyers of energy). We model the interactions in terms of a Stackelberg game, where companies set their prices and consumers respond by choosing their demands. We show that the underlying game has a unique equilibrium at which the companies maximize their revenues while the consumers maximize their utilities subject to their local constraints. Closed-form expressions are provided for the optimal strategies of all players. Based on these solutions, a power allocation game has been formulated, which is shown to admit a unique pure-strategy Nash equilibrium, for which closed-form expressions are also provided. This equilibrium is found under the assumption that companies can freely allocate their power across the time horizon, but we also demonstrate that it is possible to relax this assumption. We further provide a fast distributed algorithm for the computation of all optimal strategies using only local information. We also study the effect of variations in the number of periods (subdivisions of the time horizon) and the number of consumers. As a consequence, we are able to find an appropriate company-to-consumer ratio when the number of consumers participating in demand response exceeds some threshold. Furthermore, we show, both analytically and numerically, that the multi-period scheme provides incentives for energy consumers to participate in demand response, compared to the single-period framework studied in the literature. In our framework, we provide a condition for the minimum budgets consumers need, and carry out case studies using real life data to demonstrate the benefits of the approach, which show potential savings of up to $30\%$ and equilibrium prices that have low volatility.