text: We consider a smart-grid connecting several agents, modeled as stochastic dynamical systems, who may be electricity consumers producers. At each discrete time instant, which may represent a 15 minute interval, each agent may consume generate some quantity of electrical energy. The Independent System Operator (ISO) is given the task of assigning consumptions generations to the agents so as to maximize the sum of the utilities accrued to the agents, subject to the constraint that energy generation equals consumption at each time. This task of coordinating generation and demand has to be accomplished by the ISO without the agents revealing their system states, dynamics, or utility cost functions. We show how and when a simple iterative procedure converges to the optimal solution. The ISO iteratively obtains electricity bids by the agents, and declares the tentative market clearing prices. In response to these prices, the agents submit new bids. On the demand side, the solution yields an optimal demand response for dynamic and stochastic loads. On the generation side, it provides the optimal utilization of stochastically varying renewables such as solar wind, and generation with fossil fuel based generation with dynamic constraints such as ramping rates. Thereby we solve a decentralized stochastic control problem, without agents sharing any information about their system models, states or utility functions.
  @cite_1: 
  @cite_10: In this paper, we raise the question: What is the value that demand response management (DRM) can bring to generation companies and consumers in the smart grid? The question is fundamental for understanding the efficiency and impact of DRM on the future power grid. To answer this question, we first establish a Stackelberg game framework that captures the hierarchical communication architecture of the energy system, and the rational behaviors of the consumers and the market operator. We define the value of demand response based on the Stackelberg equilibrium (SE) solution to the hierarchical two-person game problem, and the standard optimal solution to economic dispatch problem. In order to compute the equilibrium solution, we show that a consistency principle can be used to characterize the SE of the game in which the follower responds to the dual variable of the leader's problem. We use logarithmic utility functions to illustrate the solution concept and show that in some cases, DRM provides conflicting values to the gencos and consumers.
  @cite_7: In this paper, we propose a new framework for the organization of the electric power industry, based on extensive use of information technology (IT) and on interactive decision making, where consumers and distributed producers join the traditional actors, utilities in particular, in making decisions. While many ideas considered in this paper have been put forward in recent years, such as the need to manage intermittency of renewable resources by means of proactive forecasting, and coordination with responsive demand and storage, we introduce a possible systematic IT-enabled mechanism necessary for the actual implementation of these technologies. We point out that in order to achieve a long-term sustainable energy utilization, it is essential to provide on-line information to internalize the value of just-in-time, just-in-place, and just-in-context distributed adaptation across the entire supply chain, ranging from the smallest consumers and energy providers, through their aggregators and system coordinators. We illustrate using our model-based novel simulator, how a carefully designed multidirectional and multitemporal information exchange could enable sustainable decision making while accounting for unique needs and capabilities of various resources and users. At the same time, information incentivizes the resources and users to contribute to system-wide sustainability objectives at value. We illustrate the dependence of such decisions-driven industry evolution on the industry rules (choice of performance objectives), as well as on the operating and planning practices for implementing the industry rules (temporal and spatial factors). Our model-based simulator could be used as a means of designing novel regulation defining rules, rights, and responsibilities regarding the type and rate of information to be exchanged in support of sustainable industry evolution.
summary: Viewed from the power system end, there have been many efforts since the deregulation of the electricity sector on a market-based framework to clear the system. @cite_7 have proposed a two-layered approach that internalizes individual constraints of market participants while allowing the ISO to manage the spatial complexity. The approximated MPC algorithm is shown to perform well in many realistic applications. In order to analyze the strategic interactions between the ISO and market participants, game theoretical approaches have been proposed, e.g., @cite_10 uses a Stackelberg game framework for studying economic dispatch with demand response. @cite_1 pose the problem as a noncooperative game, and prove the existence of a Nash equilibrium under some assumtpions.