Limiting gaming opportunities on incentive-based demand response programs

Abstract: Demand Response (DR) is a program designed to match supply and demand by modifying consumption profile. Some of these programs are based on economic incentives, in which, a user is paid to reduce his energy requirements according to an estimated baseline. Literature review and practice have shown that the counter-factual models of employing baselines are vulnerable for gaming. Classical solutions of mechanism design require that agents communicate their full types which result in greater difficulties for its practical implementation. In this paper, a novel contract is developed to induce individual rationality (voluntary participation) and asymptotic incentive-compatibility (truthfulness) through probability of call, where an agent does not require to report the marginal utility. In this approach, a consumer only announces the baseline and reduction capacity, given a payment scheme that includes cost of electricity, incentive price, and penalty caused by any deviation between self-reported and actual energy consumption. The aggregator decides randomly what users are called to perform the energy reduction. As result, asymptotic truth-telling behavior in incentive-based DR is managed by the aggregator through the probability of call for each agent. Mathematical proofs and numerical studies are provided to demonstrate the properties and advantages of this contract in limiting gaming opportunities and in terms of its implementation.