Incentive Design for Flexibility Provisions From Residential Energy Hubs in Smart Grid

Transforming residential loads to residential energy hubs (REHs) and hence creating a flexibility in their energy consumption, can offer significant benefits to the power grid, such as peak reduction, congestion relief and capacity deferral. In this article a novel framework is proposed to simultaneously determine the optimal incentive paid by the local distribution company (LDC) to residential customers and their optimal level of participation in transforming to REHs, considering the economic benefits of both parties. The proposed framework models the relationship between customers' participation and incentives offered by the LDC. A Monte Carlo simulation based optimization approach is employed to create a large dataset of the incentives (omega, rho(Inc)) payable by the LDC, and a desired internal rate of return (IRR) by the residential customer, so as to cover the wide range of possible IRRs the customers may have, and the impact of the incentives (omega, rho(Inc)) on each other. Numerical simulations considering a 33-bus distribution system show that the proposed framework is effective and can economically benefit the LDC and residential customers, while also achieving peak load reduction and improving distribution system operation.