Optimizing Participation of Buildings and Aggregations in Incentive-Based Demand Response Programs

Demand response (DR) programs are used to modulate electricity load in situations when procuring additional electricity to meet peak demand is expensive, and comes from polluting sources like natural gas peaker plants. At these times, it is better to induce a reduction in load than to increase the supply to maintain power balance. We study DR programs in which DR assets sign up to reduce their electric load during peak grid events (DR events) by a contracted curtailment size and receive payments on a regular basis for their contracted capacity, but are subject to penalties if they fail to curtail the contracted amount during an actual DR event. Participation in DR programs requires buildings to accurately estimate their load reduction capability and decide the curtailment they will provide based on their expected net profit. The curtailable load depends on the operating status of the building at the time of the DR event, and is random. This makes it difficult to optimize the contracted curtailment. DR aggregations can benefit participants by spreading the risk of default on the contracted curtailment.