Comparing Centralized and Decentralized Contract Design Enabling Direct Load Control for Reserves

Demand response could provide reserves to power systems and market designs should enable cost-efficient exploitation of these resources. In direct load control programs, consumers provide demand response in exchange for incentive payments. The success of such contracts is a function of level of information sharing, consumer costs, and power system constraints/costs. In this paper, we compare three approaches to contract design, each of which assumes different levels of consumer privacy. Our aim is to explore tradeoffs between privacy, resource exploitation, and the reward earned by the load aggregator. The first approach assumes full and truthful information exchange between the consumer and the system operator. We then develop a novel centralized approach in which an aggregator applies mechanism design to offer contracts to consumers who reveal partial cost information. A novel decentralized approach is developed in which consumers act cooperatively to pool demand response reserves, enabling them to keep individual cost information private. Through simulation studies, we find that, in the centralized approach, resource exploitation/rewards are highly sensitive to the accuracy of the load aggregator's consumer cost curves approximations. We also find that in the decentralized approach, rewards can be small, especially if information exchange is costly.