Bilateral negotiation in energy markets: Strategies for promoting demand response

Two major goals of electricity markets are ensuring a secure and efficient operation and decreasing the cost of energy. To achieve these goals, three major market models have been considered: pools, bilateral contracts and hybrid markets. Pool prices tend to change quickly and variations are usually highly unpredictable. In this way, market participants can enter into bilateral contracts to hedge against pool price volatility.Multi-agent electricity markets-that is, energy management tools based on software agents-have received some attention lately and a number of prominent simulators have been proposed in the literature. However, despite the power and elegance of existing tools, they often lack generality and flexibility, mainly because they are limited to particular features of market players. This paper describes on-going work that uses the potential of agent-based technology to develop a computational tool to support bilateral contracting in electricity markets. Specifically, the purpose of the paper is threefold: (i) to present the key features of a model for software agents that handles twoparty and multi-issue negotiation, (ii) to describe two novel negotiation strategies for promoting demand response, a "volume management" strategy for end-use consumers, and a "price management" strategy for producers/retailers, and (iii) to describe a case study on forward bilateral contracts, involving a retailer agent and a commercial customer.