On Controllability of Demand Response Resources & Aggregators' Bidding Strategies

European legislation encourages prosumers to generate, consume and sell self-generated electricity in local and large-scale electricity markets. Since the capacity of residential prosumers is typically insufficient to take part in wholesale markets, aggregators act as mediators. This allows prosumers to monetize the flexibility of their loads through demand response (DR). This paper analyzes the strategic behavior of a DR aggregator, responsible for the optimization of its DR providers' bids in a wholesale market. The DR resource consists of an aggregation of residential electric heating systems, governed by a physical load model and user-specified comfort constraints. The interaction between the aggregator and the DR providers is modelled via Nash Bargaining Theory. Possible deviations from the scheduled heating patterns are accounted for via chance constraints. Results show that limitedly controllable DR resources and a risk-averse aggregator may significantly reduce the monetary benefits of DR.