Addressing the Free-rider Problem in Voluntary Demand Response Programs

Abstract

Many electric utilities offer peak rebate programs, which allow them to call for load curtailment from participating consumers but the actual curtailment is voluntary. In this case, consumers may be tempted to “free-ride” on the compliance of other participants. Care should be taken in designing an appropriate incentive structure that is both, attractive enough to induce the desired curtailment, but not too attractive to induce excessive participation. This paper casts the consumer participation problem in DR as a game and analyzes its equilibrium to ascertain the nature of consumer response. We provide insights on the role of incentives and number of consumers called for curtailment, in inducing the desired curtailment.