State Space Collapse in Resource Allocation for Demand Dispatch

TL;DR

This paper analyzes the optimal resource allocation in demand dispatch, revealing a structure called state space collapse, and explores its implications for market pricing and equilibrium.

Contribution

It uncovers the structure of the optimal solution in resource allocation for demand dispatch and models the market equilibrium with a novel costate-based pricing approach.

Findings

Optimal costate process spans a two-dimensional subspace.

Existence of a competitive equilibrium with a specific price structure.

Equilibrium price differs from standard power consumption utility models.

Abstract

Demand dispatch is the science of extracting virtual energy storage through the automatic control of deferrable loads to provide balancing or regulation services to the grid, while maintaining consumer-end quality of service (QoS). The control of a large collection of heterogeneous loads is in part a resource allocation problem, since different classes of loads are valuable for different services. The goal of this paper is to unveil the structure of the optimal solution to the resource allocation problem and to investigate short term market implications. It is found that the marginal cost for each load class evolves on a two-dimensional subspace, spanned by an optimal costate process and its derivative. The resource allocation problem is recast to construct a dynamic competitive equilibrium model, in which the consumer utility is the negative of the cost of deviation from ideal QoS. It is found that a competitive equilibrium exists, with the equilibrium price equal to the negative of an optimal costate process. Moreover, the equilibrium price is different from what would be obtained based on the standard assumption that the consumer's utility is a function of power consumption.