Redesign of Virtual Power Plant-led Electricity Demand Response Program

Abstract

As the scale of renewable energy on the demand side continues to grow, a new demand response program (DRP), the virtual power plant (VPP), pays a rebate to the consumer and purchases his rooftop solar electricity. This electricity is dispatched to areas of electricity shortages, which is vital in balancing electricity loads and avoiding energy waste. However, the new DRP differs from the traditional DRP in terms of paying rebates. The traditional DRP requires consumers to respond above a specified baseline to receive a rebate. In contrast, in the new DRP, consumers can receive a rebate even if their response is small (i.e., no baseline). There is no research that addresses this divergence. Therefore, we construct a supply chain consisting of a consumer and a VPP for this novel DRP and analyze the strategic interactions between them in two situations where a baseline is not set/set. Our results show room for improvement in the DRP that dispatches electricity generated from rooftop solar. If the consumer generates more electricity from rooftop solar, the baseline, rather than frustrating the consumer, motivates the consumer to be more responsive. While the baseline also discourages the demand response process, it reduces the emissions generated from the consumer’s over-responsiveness. Additionally, our study suggests that a baseline, whether it facilitates or hinders the DRP, could benefit the VPP, depending on the business model of the VPP. In addition, we add several extensions to demonstrate the robustness of our model.