Residential Demand Response program design: Engineering and economic perspectives

There exists disagreement on how Demand Response (DR) programs should be designed. This is likely because people from different fields view DR differently. For example, some see DR as a mechanism to improve the economic efficiency of electricity markets while others see it as a new control variable that can enhance power system reliability and security. In this paper, we review the many options for harnessing residential electric loads for DR and consider the engineering and economic implications associated with three specific cases: (1) real time pricing, (2) dispatch-based control via an aggregator participating in wholesale markets, and (3) direct participation in energy markets. We develop both the engineering and the economic arguments for/against each option, and analyze them together in order to understand which options are most suitable for which applications. We find that the appropriate choice of DR program design depends on the DR program objective. Economic goals may be achieved through well-designed pricing and/or bidding mechanisms. Reliability is best achieved through dispatched-based programs. We illustrate our findings with several conceptual examples.