Analysis of coupon incentive-based demand response with bounded consumer rationality

Incentive-based demand response in electric distribution grid has been recently proposed as an alternative to price-based mechanism. In this paper, the performance of a coupon incentive-based demand response (CIDR) in a real world setting is formulated and critically assessed. In the scheme of CIDR, load serving entities (LSEs) issue coupons to consumers whenever real-time wholesale price spikes are expected, thus avoiding further loss when price-affecting contingencies happen in near real-time. expected outcome of CIDR with bounded rational consumers are formulated and analyzed. It is shown that there exists fundamental connection between scheme of CIDR and conventional price-based demand response. Game theoretical models are introduced as a means to capturing the interactions between load serving entities and consumers with bounded rationality. Numerical examples obtained from Electric Reliability Council of Texas (ERCOT) illustrate the efficacy of proposed analysis.