Demand Response Management for Profit Maximizing Energy Loads in Real-Time Electricity Market

In this paper, we consider the profit-maximizing demand response of an energy load in the real-time electricity market. In a real-time electricity market, the market clearing price is determined by the random deviation of actual power supply and demand from the predicted values in the day-ahead market. An energy load, which requires a total amount of energy over a certain period of time, has the flexibility of shifting its energy usage in time, and therefore is in perfect position to exploit the volatile real-time market price through demand response. We show that the profit-maximizing demand response strategy can be obtained by solving a finite-horizon Markov decision process (MDP) problem, which requires extremely high computational complexity due to continuous state and action spaces. To tackle the high computational complexity, we propose a dual approximate approach that transforms the MDP problem into a linear programing problem by exploiting the threshold structure of the optimal solution. Then, a row-generation-based solution algorithm is proposed to solve the problem efficiently. We demonstrate through extensive simulations that the proposed method significantly reduces the computational complexity of the optimal MDP problem (linear versus exponential complexity), while incurring marginal performance loss. More interestingly, the proposed demand response strategy hits a triple win. It not only maximizes the profit of the energy load, but also alleviates the supply-demand imbalance in the power grid, and even reduces the bills of other market participants. On average, the proposed quadratic approximation and improved row generation algorithm increases the energy load's profit by 55.9% and saves the bills of other utilities by 80.2% comparing with the benchmark algorithms.