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

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.