Demand-side participation has been considered crucial for future power systems with high penetrations of variable and uncertain renewable supply. However, unless suitable pricing/incentive signals are provided and proper price-driven response are designed, entities with demand flexibility will neither be interested nor effective in improving the system's capability to cope with renewable uncertainty. Designing such pricing-driven decentralized control has been an extremely challenging problem. In particular, price-driven demand response will bring in new sources of variability and uncertainty into the overall power system, which in turn affect the system dynamics and market prices. This closed-loop interactions of price and demand-side variability, fueled by the uncertainty of renewable supply, will produce complex system dynamics which, if not designed and controlled properly, can lead to highly volatile demand behavior and market outcomes. The resulting volatility not only increases the risk of system instability, but also increases the price-uncertainty and financial risk faced by the flexible demand, discouraging them from participating in active demand response in the first place. Thus, our research goal is to understand at a fundamental level how to generate price signals that account for the closed-loop interactions due to demand-side flexibility, and how to design price-driven demand-side response that achieves stable and efficient operation of the overall power system.
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