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

## TL;DR

This paper introduces a simple, incentive-compatible demand response program where consumers self-report baselines, using random selection and penalties to control baseline inflation and reduce costs effectively.

## Contribution

It proposes a novel incentive-based DR mechanism with self-reported baselines, controlling inflation and costs through randomization and penalties, outperforming existing methods.

## Key findings

- Self-reported baseline mechanism outperforms traditional methods.
- Random selection and penalties effectively control baseline inflation.
- Mechanism reduces system operator costs while ensuring load reduction.

## Abstract

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.