Market-Based Coordination for Domestic Demand Response in Low-Carbon Electricity Grids

In line with the efforts towards a low-carbon economy, we design a novel auction protocol for electricity retailers to procure and coordinate demand response (DR) from their domestic customers in order to reduce expensive balancing generation. Unlike price-signalled DR, we explore an alternative avenue in which households are given fixed retail prices, but they proactively submit DR offers in exchange for discounts. We formalise a concept of DR operational flexibility that can be integrated into the meter readings, it is independent from regular electricity use, and its performance can be measured. In addition, a verification method and two penalty schemes are designed to incentivise truthful reporting. We study a VCG-based mechanism for retailer and household coordination, and put forward a McAfee-based double auction for a multi-retailer setting. Finally, we prove some theoretical properties of these mechanisms and empirically evaluate its economic effects in simulations based on data from a survey of UK household electricity use.