Incentive Mechanism for Demand Side Management in Smart Grid Using Auction

Smart pricing methods using auction mechanism allow more information exchange between users and providers, and they can meet users´ energy demand at a low cost of grid operation, which contributes to the economic and environmental benefit in smart grid. However, when asked to report their energy demand, users may have an incentive to cheat in order to consume more while paying less, causing extra costs for grid operation. So it is important to ensure truthfulness among users for demand side management. In this paper, we propose an efficient pricing method that can prevent users´ cheating. In the proposed model, the smart meter can record user´s consumption information and communicate with the energy provider´s terminal. Users´ preferences and consumption patterns are modeled in form of a utility function. Based on this, we propose an enhanced AGV (Arrow-d´Aspremont-Gerard-Varet) mechanism to ensure truthfulness. In this incentive method, user´s payment is related to its consumption credit. One will be punished to pay extra if there is a cheat record in its consumption history. We prove that the enhanced AGV mechanism can achieve the basic qualifications: incentive compatibility, individual rationality and budget balance. Simulation results confirm that the enhanced AGV mechanism can ensure truth-telling, and benefit both users and energy providers.