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Signalling for electricity demand response: When is truth telling optimal?

Author

Listed:
  • René Aïd

    (FiME Lab - Laboratoire de Finance des Marchés d'Energie - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CREST - EDF R&D - EDF R&D - EDF [E.D.F.] - EDF – Électricité de France, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • A. Kowli
  • A. A. Kulkarni

Abstract

Utilities and transmission system operators (TSO) around the world implement demand response programs for reducing electricity consumption by sending information on the state of balance between supply demand to end-use consumers. We construct a Bayesian persuasion model to analyse such demand response programs. Using a simple model consisting of two time steps for contract signing and invoking, we analyse the relation between the pricing of electricity and the incentives of the TSO to garble information about the true state of the generation. We show that if the electricity is priced at its marginal cost of production, the TSO has no incentive to lie and always tells the truth. On the other hand, we provide conditions where overpricing of electricity leads the TSO to provide no information to the consumer.

Suggested Citation

  • René Aïd & A. Kowli & A. A. Kulkarni, 2025. "Signalling for electricity demand response: When is truth telling optimal?," Post-Print hal-05483744, HAL.
    • Handle: RePEc:hal:journl:hal-05483744
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