Research on the strategies of electricity retailers: Retail plan design and reserve market participation

•Designing two incentive-based competitive retail plans to aggregate demand-side resources.•Analyzing bounded rational consumers’ value function.•Introducing a pre-scheduling arrangement of demand response resources in the reserve market based on availability and response cost.•Optimizing benefits for retailers in reserve and retail markets through solving bidding strategies and package parameter design. The high penetration of the renewables makes the power grid operation less reliable and risky. Demand Response programs can provide flexible capacity to alleviate the operational pressure. In a typical competitive retail market, the electricity retailer can incentivize the consumers to provide demand reduction in the reserve market and obtain additional profit from the grid. In the wholesale and reserve market, the participants receive a two-part income of certain revenue and activation revenue. In this paper, the optimal strategy of the electricity retailers is studied, including two proposed retail plans as well as the retailer’s bidding strategy in the wholesale reserve market. The proposed strategy is proven effective through a case study, demonstrating that introducing incentive-based demand response in the retail plan creates a win-win-win situation for the grid, retailers, and consumers. The experiment demonstrates that competitive bundles can generate at least 22 % additional revenue for retailers, while customized bundles can bring in an additional 23 % revenue for retailers and contribute to the system with an extra 9 % in reserve capacity bidding.