A Stackelberg game for incentive-based demand response in energy markets

TL;DR

This paper introduces a hierarchical Stackelberg game model for incentivizing prosumers in energy markets to provide demand response and ancillary services, combining price-based and incentive-based approaches.

Contribution

It formulates a bilevel optimization problem as a Stackelberg game and proves the existence and convergence to a local equilibrium, with numerical validation.

Findings

The framework effectively incentivizes prosumers to participate in demand response.

The bilevel optimization converges to a local Stackelberg equilibrium.

Numerical simulations demonstrate benefits for the energy grid and prosumers.

Abstract

In modern buildings renewable energy generators and storage devices are spreading, and consequently the role of the users in the power grid is shifting from passive to active. We design a demand response scheme that exploits the prosumers' flexibility to provide ancillary services to the main grid. We propose a hierarchical scheme to coordinate the interactions between the distribution system operator and a community of smart prosumers. The framework inherits characteristics from price-based and incentive-based schemes and it retains the advantages of both. We cast the problem as a Stackelberg game with the prosumers as followers and the distribution system operator as leader. We solve the resulting bilevel optimization program via a KKT reformulation, proving the existence and the convergence to a local Stackelberg equilibrium. Finally, we provide numerical simulations to corroborate our claims on the benefits of the proposed framework.