A Distributed Online Pricing Strategy for Demand Response Programs
For utilities operating demand response programs with unknown consumer cost functions and limited communication, this work provides a practical algorithm with theoretical guarantees.
The paper tackles a demand response problem where a utility must minimize operational cost under uncertainty and limited communication with consumers. The proposed online learning and pricing algorithm achieves logarithmic regret relative to the offline optimum, with simulations showing rapid convergence.
We study a demand response problem from utility (also referred to as operator)'s perspective with realistic settings, in which the utility faces uncertainty and limited communication. Specifically, the utility does not know the cost function of consumers and cannot have multiple rounds of information exchange with consumers. We formulate an optimization problem for the utility to minimize its operational cost considering time-varying demand response targets and responses of consumers. We develop a joint online learning and pricing algorithm. In each time slot, the utility sends out a price signal to all consumers and estimates the cost functions of consumers based on their noisy responses. We measure the performance of our algorithm using regret analysis and show that our online algorithm achieves logarithmic regret with respect to the operating horizon. In addition, our algorithm employs linear regression to estimate the aggregate response of consumers, making it easy to implement in practice. Simulation experiments validate the theoretic results and show that the performance gap between our algorithm and the offline optimality decays quickly.