Near-optimal demand side management in retail electricity markets with coupling constraints via indirect mechanism design

Recently there have been several historical changes in electricity networks that necessitate the development of Demand Side Management (DSM). The main objective of DSM is to achieve an aggregated consumption pattern that is efficient in terms of energy cost reduction, welfare maximization and satisfaction of network constraints. This is generally envisaged by encouraging electricity use at low-peak times. In this paper, we consider a system with strategic, price anticipating consumers with private preferences that choose their electricity consumption patterns so as to maximize their own benefit. In this context, we take on the problem of coordinating the consumers' consumption behavior without sacrificing their welfare (Quality of Experience). In order to tackle this problem, we draw on concepts of indirect mechanism design and propose a DSM architecture that is able to fulfill specific system-wide constraints (e.g. energy cost reduction) and simultaneously achieve welfare that is very close to optimal. The proposed billing rule preserves both the budget-balance and the individual rationality properties. According to our evaluation, the proposed DSM architecture achieves a close to optimal allocation (1%-3% gap), compared to an "optimal" system that would use central optimization of user loads without user consensus or protection of their privacy