A Distributed Online Pricing Strategy for Demand Response Programs

We study a demand response problem from operator’s perspective with realistic settings, in which the operator faces uncertainty and limited communication. Specifically, the operator does not know the cost function of consumers and cannot have multiple rounds of information exchange with consumers. We formulate an optimization problem for the operator to minimize its operational cost considering time-varying demand response targets and responses of consumers. We develop a joint online learning and pricing algorithm. In each time slot, the operator sends out a price signal to all consumers and estimates the cost functions of consumers based on their noisy responses. We measure the performance of our algorithm using regret analysis and show that our online algorithm achieves logarithmic regret with respect to the operating horizon. In addition, our algorithm employs linear regression to estimate the aggregate response of consumers, making it easy to implement in practice. Simulation experiments validate the theoretic results and show that the performance gap between our algorithm and the offline optimality decays quickly. Index Terms Demand response, online strategy, linear regression