An Incentive Compatible Market Mechanism for Integrating Demand Response into Power Systems

The proposed two-settlement market consists of a forward market where demand response providers bid in the market, and a spot market where the promises are delivered. An overview of the proposed market mechanism is as follows:

1. In the forward market
   • The DRPs submit their DA information to the ISO based on their estimates of the cost rates and capacities;
   • The DA generators submit their information to the ISO;
   • Based on these DA information, the ISO optimally schedules the energy resources to meet the total load, and pays the energy resources accordingly.
2. In the spot market
   • The DRPs submit their RT information to the ISO based on their realized cost rates and capacities;
   • The RT generators submit their information to the ISO;
   • Based on these RT information, the ISO performs another optimal scheduling to balance the generation and load, and pays/charges the energy resources accordingly.

Theorem 1. (Incentive Compatibility) Under the proposed mechanism detailed in Section II, truthful bidding is a Nash equilibrium.

The timeline for the proposed demand response market is shown in the following figure.

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