Bargaining-based cooperative energy trading for distribution company and demand response

Highlights: • The economic interaction between Disco and demand response aggregator is modeled as a bargaining-based cooperative game. • The axiomatic connection between the Nash bargaining solution and social optimum is investigated. • A distributed solution to the problem is introduced to guarantee the autonomy and privacy of participants. • The bargaining cooperative interaction can benefit consumers and energy providers simultaneously. This paper studies the energy trading among flexible demand response aggregators (DRAs) and a distribution company (Disco) with self-owned generators. Instead of the conventional non-cooperative game based approach, the trading problem is formulated as a bargaining based cooperative model, where Disco and DRAs collaboratively decide the amounts of energy trade and the associated payments. This cooperative interaction can be beneficial to both Disco and DRAs, by reducing the aggregated peak demand and increasing the potential cost savings. The increased benefits from cooperation are fairly allocated among these participants, based on the Nash bargaining theory. Compared with the non-cooperative game based approach, the proposed bargaining cooperative model can further improve the benefits of Disco and DRAs. Moreover, the bargaining outcome can maximize the social welfare of the system. Considering the privacy and autonomy issues of participants, we utilize a decentralized solution to solve the bargaining problem, with minimum information exchange. Numerical studies demonstrate the effectiveness of the bargaining -based cooperative framework, and also show the improvement of benefits of the system.