Self-regulating supply-demand systems

Abstract Supply–demand systems in Smart City sectors such as energy, transportation, telecommunication, are subject of unprecedented technological transformations by the Internet of Things. Usually, supply–demand systems involve actors that produce and consume resources, e.g. energy, and they are regulated such that supply meets demand, or demand meets available supply. Mismatches of supply and demand may increase operational costs, can cause catastrophic damage in infrastructure, for instance power blackouts, and may even lead to social unrest and security threats. Long-term, operationally offline and top-down regulatory decision-making by governmental officers, policy makers or system operators may turn out to be ineffective for matching supply–demand under new dynamics and opportunities that Internet of Things technologies bring to supply–demand systems, for instance, interactive cyber–physical systems and software agents running locally in physical assets to monitor and apply automated control actions in real-time. e.g. power flow redistributions by smart transformers to improve the Smart Grid reliability. Existing work on online regulatory mechanisms of matching supply–demand either focuses on game-theoretic solutions with assumptions that cannot be easily met in real-world systems or assume centralized management entities and local access to global information. This paper contributes a generic decentralized self-regulatory framework, which, in contrast to related work, is shaped around standardized control system concepts and Internet of Things technologies for an easier adoption and applicability. The framework involves a decentralized combinatorial optimization mechanism that matches supply–demand under different regulatory scenarios. An evaluation methodology, integrated within this framework, is introduced that allows the systematic assessment of optimality and system constraints, resulting in more informative and meaningful comparisons of self-regulatory settings. Evidence using real-world datasets of energy supply–demand systems confirms the effectiveness and applicability of the self-regulatory framework. It is shown that a higher informational diversity in the options, from which agents make local selections, results in a higher system-wide performance. Several strategies with which agents make selections come along with measurable performance trade-offs creating a vast potential for online adjustments incentivized by utilities, system operators and policy makers.