Integration Mechanisms for LQ Energy Day-ahead Market Based on Demand Response

Demand side management (DSM) has been studied to optimize the demand side of energy networks, which leads to maximization of social welfare. Methods of DSM usually require exchanges of true information used in the optimization process including private information, but in general market participants are not willing to reveal their private information. In a competitive society, each consumer's selfish behavior could generally disturb the maximization of the whole network's benefit. In this paper, we describe a concrete model for consumers, and formulate a dynamic linear quadratic (LQ) energy demand network in which a day-ahead market based on demand response is formed, and apply two kinds of optimization-based mechanisms inspired by mechanism design theory from economics literature. One is the Vickrey-Clarke-Groves (VCG) type mechanism, which is ex post incentive compatible and individually rational. The other is the d'Aspremont and Gerard-Varet and Arrow (AGV) type mechanism, which is interim incentive compatible and budget balanced. These mechanisms require the utility company to design an incentive cost (transfer), so that the rational consumption schedules of consumers based on their own benefits lead to the whole network's maximum benefit. Through numerical experiment, we demonstrate effectiveness of the mechanisms.