Generalizing Demand Response Through Reward Bidding

Demand-side response (DR) is emerging as a crucial technology to assure stability of modern power grids. The uncertainty about the cost agents face for reducing consumption imposes challenges in achieving reliable, coordinated response. In recent work, Ma et al. introduce DR as a mechanism design problem and solve it for a setting where an agent has a binary preparation decision and where, contingent on choosing to prepare, the probability an agent will reduce demand is fixed. We generalize this model in two ways: (i) agents have uncertainty in their costs of responding, and (ii) agents have multiple levels of eort they can exert in preparing. For both cases, the design of contingent payments now aects the probability of response. We design a new, truthful and reliable mechanism that uses a "reward-bidding" approach rather than the "penalty-bidding" approach. It has good performance when compared to natural benchmarks. The mechanism also extends to handle multiple units of demand response from each agent.