A market-oriented hierarchical framework for residential demand response Mubbashir Ali ⇑ , Antti Alahäivälä, Farhan Malik, Muhammad Humayun, Amir Safdarian, Matti Lehtonen Department of Electrical Engineering and Automation, Aalto University, Espoo, Finland article info Article history: Received 22 July 2014 Received in revised form 22 December 2014 Accepted 14 January 2015 Keywords: Demand response Regulation power market Smart grid Storage space heating abstract The integration of a great deal of uncertain renewable sources in future grids will require more opera- tional flexibility. Demand response (DR) can provide the load shaping potentials thereby assuaging the need for operational flexibility. To this end, this paper intends to develop a framework focusing on real- ization of domestic storage space heating DR capability in balancing market. The developed framework consists of two hierarchical stages named energy market stage and balancing power market stage. The first stage deals with customers’ day-ahead decisions in energy market. In this stage, the system operator releases day-ahead energy prices in response to which customers optimize their electricity usage to min- imize their energy expenses. The second stage optimizes customers’ intra hour load scheduling decisions in balancing power market. In the second stage, up/down power regulation incentives are offered to customers who, in the hope of achieving monetary gains, modify their promised day-ahead decisions. Performance of the framework is verified through simulations on Finnish case studies. According to the obtained results, the framework allows the customers to make savings in energy expenses as well as the system operator to benefit from DR. Ó 2015 Elsevier Ltd. All rights reserved. Introduction The inspiration of smart grid is the integration of renewable generation, distributed energy resources and augmenting the energy efficiency in power and energy systems. Due to the high penetration of intermittent renewable generation and the deregu- lation of power market there will be a considerable need for addi- tional flexibility for a reliable power system operations [1]. This flexibility can be readily deployed by activating residential demand response to induce noteworthy technical, economic and ecological benefits [2]. Residential demand response needs to be activated in the balancing power market for increasing the up/down ramping flexibility. Implementing price based demand response can create an interactive scheme which can not only reduce the energy pay- ment but also mitigate the mismatch between demand and supply and increase the monetary gains. In a typical household in Finland, thermostatic loads such as heating, ventilation and air-conditioning (HVAC), and electric water heaters (EWH) accounts for about 70% of the total household energy consumption [3]. There are analyses that showed that HVAC loads give a very good result in terms of ramping up and down response without deteriorating customer’s thermal comfort and can prove to be a good candidate for providing fast demand response [4,5]. The research on HVAC loads management for customers’ eco- nomic benefit and systems operation perspective have received a lot of attention in the literature. The following works [6–10] pre- sented frameworks for activating the demand response in energy market only. The work [6,7] used a linear programming approach for storage control under dynamic power pricing to reduce the cus- tomer energy payment. The work in [8] presented a demand response model for coordinating the operation of partial thermal storage and thermal masses of building structure to reduce cus- tomer’s energy payment in day-ahead energy market only. The authors in [9] developed a framework for optimal scheduling of the EWH based on price and consumption forecasts without violat- ing the consumers’ thermal comfort. The research in [10] coordi- nated the load management of HVAC and EV to bring customer economic savings in energy market. Nevertheless, there are papers whose focuses were assessing the DR potential of domestic heating load i.e. HVAC and EWH in balancing power market. For instance, the study in [11] explored the system-wide power balancing potential through EWH load considering customers thermal comfort. The results reported are http://dx.doi.org/10.1016/j.ijepes.2015.01.020 0142-0615/Ó 2015 Elsevier Ltd. All rights reserved. ⇑ Corresponding author at: Aalto University, Department of Electrical Engineering and Automation, Otakaari 5 A, PO Box 13000, Espoo 00076, Finland. Tel.: +358 50 4367307; fax: +358 9 47022991. E-mail address: mubbashir.ali@aalto.fi (M. Ali). Electrical Power and Energy Systems 69 (2015) 257–263 Contents lists available at ScienceDirect Electrical Power and Energy Systems journal homepage: www.elsevier.com/locate/ijepes