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SUMMARY:Optimal Electricity Demand Response Contracting - Rene Aid (Univer
 sité Paris-Dauphine)
DTSTART:20190109T090000Z
DTEND:20190109T100000Z
UID:TALK116770@talks.cam.ac.uk
CONTACT:INI IT
DESCRIPTION:Co-authors: Dylan Possama&iuml\; (Columbia University)\, Nizar
  Touzi (Ecole Polytechnique)We address the moral hazard underlying demand 
 response contracts in electricity markets\, we formulate the interaction p
 roblem between producer and the consumer by means of a Principal-Agent pro
 blem. The producer\, acting as the Principal\, is subject to the generatio
 n costs related to the level and the volatility of generation\, thus accou
 nting for the limited flexibility of production. Based on the continuous-t
 ime consumption of the Agent\, representing a single consumer\, she sends 
 an incentive compensation in order to encourage him to reduce his average 
 consumption and to improve his responsiveness defined as the volatility of
  his consumption. We provide closed-form expression for the optimal contra
 ct that maximizes the utility of the principal in the case of linear energ
 y valuation. We provide rationality for the form of the observed demand-re
 sponse contracts\, that is a fixed premium for enrolment and a proportiona
 l price for the energy consumed. However\, we show that the pre mium shoul
 d be an increasing function of the duration of the demand response event. 
 Further\, we show that optimal contracting allows the system to bear more 
 risk as the resulting consumption volatility may increase\, but the corres
 ponding risk is now optimally shared between the two actors. We calibrate 
 of our model to publicly available data of the London demand-response tria
 l\, and we infer that a significant increase of responsiveness can be expe
 cted by the implementation of the control of the consumption volatility. W
 e find that the responsiveness control would lead a significant increase o
 f the value of the producer. We examine the stability of our explicit opti
 mal contract by performing appropriate sensitivity analysis\, and show tha
 t the linear approximation of the energy value function of the consumer pr
 ovides a robust approximation of the optimal contract.
LOCATION:Seminar Room 1\, Newton Institute
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