Inter-Organizational Demand Response Applications: How to Address Moral Hazard in Smart Grids

Intermittent renewable energy sources such as wind and solar are increasingly integrated into the power grid. So-called Demand Response (DR) applications are a relatively low-cost and quick means to balance the resulting generation fluctuations. Against this background, the allegation of fraud against a large DR provider in 2011 gives rise to questions about a systematic cooperation problem. We address this potential market failure and analyze the demand response business model by using the principal agent theory (PAT). We show that hidden action can indeed lead to market failure. Among the possible PAT solutions we show that monitoring can be realized based on a combined openADR protocol and data integrity approach. Finally, we highlight the prospects of a standardized and automated IS-based solution and provide an outlook of current research gaps.

[1]  Girish Ghatikar,et al.  BACnet Today and the Smart Grid , 2012 .

[2]  Jean Tirole,et al.  Reliability and Competitive Electricity Markets , 2004 .

[3]  George A. Akerlof.  The Market for “Lemons”: Quality Uncertainty and the Market Mechanism , 1970 .

[4]  M. Spence.  Job Market Signaling , 1973 .

[5]  Markus Karwe,et al.  Maintaining Privacy in Data Rich Demand Response Applications , 2012, SmartGridSec.

[6]  E. Maskin,et al.  The Principal-Agent Relationship with an Informed Principal: The Case of Private Values , 1990 .

[7]  G. Manimaran,et al.  Data integrity attack and its impacts on voltage control loop in power grid , 2011, 2011 IEEE Power and Energy Society General Meeting.

[8]  Jens Strüker,et al.  Intermediaries for the internet of energy - exchanging smart meter data as a business model , 2011, ECIS.

[9]  Manfred Kochen,et al.  On the economics of information , 1972, J. Am. Soc. Inf. Sci..

[10]  J. Tirole,et al.  Reliability and Competitive Electricity Markets , 2004 .

[11]  S. Borenstein,et al.  Dynamic Pricing, Advanced Metering, and Demand Response in Electricity Markets , 2002 .

[12]  Mark Kroll,et al.  A reexamination of agency theory assumptions: extensions and extrapolations , 2001 .

[13]  Ben Moss,et al.  The data integrity problem and multi-layered document integrity , 2007 .

[14]  Mohammed H. Albadi,et al.  Demand Response in Electricity Markets: An Overview , 2007, 2007 IEEE Power Engineering Society General Meeting.

[15]  Richard T. Watson,et al.  Information Systems and Environmentally Sustainable Development: Energy Informatics and New Directions for the IS Community , 2010, MIS Q..

[16]  Henning Baars,et al.  Evaluation of RFID applications for logistics: a framework for identifying, forecasting and assessing benefits , 2009, Eur. J. Inf. Syst..