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Journal Paper Accepted at Applied Energy Journal – Demand Side Management in a Day-Ahead Wholesale Market: A Comparison of Industrial & Social Welfare Approaches

The LIINES is pleased to announce the acceptance of the paper entitled: “Demand Side Management in a Day-Ahead Wholesale Market: A Comparison of Industrial & Social Welfare Approaches” to Applied Energy Journal for publication. The paper is authored by Bo Jiang, Prof. Amro M. Farid, and Prof. Kamal Youcef-Toumi.

The intermittent and unpredictable nature of renewable energy brings operational challenges to electrical grid reliability. The fast fluctuations in renewable energy generation require high ramping capability which must be met by dispatchable energy resources. In contrast, Demand Side management (DSM) with its ability to allow customers to adjust electricity consumption in response to market signals has been recognized as an efficient way to shape load profiles and mitigate the variable effects of renewable energy as well as to reduce system costs. However, the academic and industrial literature have taken divergent approaches to DSM implementation. While the popular approach among academia adopts a social welfare maximization formulation, defined as the net benefit from electricity consumption measured from zero, the industrial practice introduces an estimated baseline.   This baseline represents the counterfactual electricity consumption that would have occurred without DSM, and customers are compensated according to their load reduction from this predefined electricity consumption baseline.


In response to the academic and industrial literature gap, our paper rigorously compares these two different approaches in a day-ahead wholesale market context. We developed models for the two methods using the same mathematical formalism and compared them analytically as well as in a test case using RTS-1996 reliability testing system. The comparison of the two models showed that a proper reconciliation of the two models might make them dispatch in fundamentally the same way, but only under very specific conditions that are rarely met in practice. While the social welfare model uses a stochastic net load composed of two terms, the industrial DSM model uses a stochastic net load composed of three terms including the additional baseline term. While very much discouraged, customers have an implicit incentive to surreptitiously inflate the administrative baseline in order to receive greater financial compensation. An artificially inflated baseline is shown to result in a higher resource dispatch and higher system costs.

The high resource scheduling due to inflated baseline likely require more control activity in subsequent layers of enterprise control including security constrained economic dispatch and regulation service layer. Future work will continue to explore the technical and economic effects of erroneous industrial baseline.

About the Author:

Bo Jiang conducted this research in collaboration with her Master’s thesis advisor Prof. Amro M. Farid and Prof. Kamal Youcef-Toumi at Massachusetts Institute of Technology. Her research interests include renewable energy integration, power system operations and optimization. Bo is now pursuing her PhD at MIT Mechanical Engineering Department.

A full reference list of Smart Power Grids and Intelligent Energy Systems research at LIINES can be found on the LIINES publication page: http://engineering.dartmouth.edu/liines




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