Applications of Mechanism Design in Market-Based Demand-Side Management

TL;DR

This paper reviews how mechanism design theory is applied to market-based demand-side management in electricity grids, highlighting recent advances, challenges, and future research directions.

Contribution

It categorizes existing literature on mechanism design in DSM, critiques utility functions and indirect mechanisms, and discusses challenges for practical implementation.

Findings

Mechanism design approaches improve demand flexibility and grid stability.

Existing literature has gaps in practical implementation strategies.

Future research should address real-world challenges and develop robust mechanisms.

Abstract

The intermittent nature of renewable energy resources creates extra challenges in the operation and control of the electricity grid. Demand flexibility markets can help in dealing with these challenges by introducing incentives for customers to modify their demand. Market-based demand-side management (DSM) have garnered serious attention lately due to its promising capability of maintaining the balance between supply and demand, while also keeping customer satisfaction at its highest levels. Many researchers have proposed using concepts from mechanism design theory in their approaches to market-based DSM. In this work, we provide a review of the advances in market-based DSM using mechanism design. We provide a categorisation of the reviewed literature and evaluate the strengths and weaknesses of each design criteria. We also study the utility function formulations used in the reviewed literature and provide a critique of the proposed indirect mechanisms. We show that despite the extensiveness of the literature on this subject, there remains concerns and challenges that should be addressed for the realistic implementation of such DSM approaches. We draw conclusions from our review and discuss possible future research directions.