The DSM Optimal Incentive Mechanism Based on Principal-Agent Theory

The main approach for promoting grid companies to implement Demand Side Management (DSM) is to establish effective DSM incentive mechanisms. This paper builds expected utility functions for the regulatory agency and the grid companies from the point of principal-agent theory, calculates the utility functions under different regulatory approach, and the results show that Shared Savings Incentive Mechanism can achieve regulatory agency´s objectives and make grid companies´ benefit maximization at the same time.