A Novel Demand Response Model with an Application for a Virtual Power Plant

In modern power systems and electricity markets, demand response (DR) programs play an important role enabling the mitigation of critical load periods or price-peaking scenarios, thereby improving system reliability. Price fluctuations, in forward or real-time markets, can be an effective price-based DR mechanism for curtailing or shifting load. However, using dynamic pricing to achieve a desired load profile requires both an accurate demand forecast and knowledge of the price elasticity of demand, which is notoriously difficult to estimate. The limited accuracy of these parameter estimates is the main source of uncertainty limiting appropriate DR implementation. In this paper, we present a novel DR scheme that avoids the need to predict the price elasticity of demand or demand forecast, yet still delivers a significant DR. This is done based on the consumers' submissions of candidate load profiles ranked in the preference order. The load aggregator then performs the final selection of individual load profiles subject to the total system cost minimization. Additionally, the proposed DR model incorporates a fair billing mechanism that is enhanced with an ex post consumer performance tracking scheme implemented in a context of a virtual power plant aggregating load and generation units.