Abstract

Decentralized power grid systems present new challenges for independent system operators (ISOs) in balancing electricity demand, ensuring grid stability, and optimizing operational costs. A bilevel optimization problem is introduced to represent the hierarchical decision-making process between an ISO and multiple electricity users. The ISO sets subsidy rates and real-time pricing (RTP) to influence user behavior while users optimize their energy consumption and distributed energy resource (DER) operations. A reformulation-and-decomposition algorithm is proposed to address bilevel feasibility issues and to improve computational efficiency. Computational experiments compare two demand response programs (DRPs) settings on subsidy programs and RTP. The results show that integrating RTP enhances bilevel feasibility, improves peak load reduction, and increases computational complexity. Budget allocation significantly impacts DRP effectiveness, with diminishing returns at higher levels. The findings highlight the benefits of a mixed DRP approach for improving decentralized grid operations.