A Game-Theoretic Analysis of Demand Response in Electricity Markets

This paper presents a game-theoretic approach to demand response in electricity markets. A Stackelberg game model is developed to capture the interplay between a Demand Response Aggregator (DRA) and electricity generators, where the DRA acts the leader of the game and makes demand reduction bids by taking into account their profitability. The classical generators respond by adjusting their electricity generation levels which leads to an equilibrium solution of the resulting strategic (non-cooperative) game in the competitive wholesale electricity market. A numerical analysis of the Stackelberg game shows that highly concentrated markets during the peak hours are the most profitable scenarios for the demand response from the DRA's perspective.