Contract Design for Aggregating, Trading, and Distributing Reserves in Demand-Side Frequency Regulation

With the integration of renewable energy sources to the power grid, the volatility of supply in the system will increase. Consequently, the mismatch between the power supply and demand may happen frequently and, thus, lead to frequency deviation from its nominal value. To avoid this scenario, demand-side flexibility has been widely considered to provide frequency regulation services. In this paper, we focus on the flexibility of thermal systems in buildings and propose a hierarchical demand-response market with a three-step algorithm to model the interactions among three entities: the independent system operators (ISOs), aggregators, and end users. The flexibility from the end users is aggregated in step 1, which is based on the incentive and electricity prices broadcasted by the aggregator. A robust optimization approach is adopted to improve the user's decision under the electricity price uncertainty. To model the interaction between the ISO and aggregators in step 2, a bilevel optimization problem is solved, in which the ISO seeks to minimize its cost, while the aggregators maximize their benefits in the day-ahead market. In step 3, each aggregator allocates its successful trading reserve among end users based on their performance scores.