Psychological insights for incentive-based demand response incorporating battery energy storage systems: A two-loop Stackelberg game approach

Demand-side resources play a significant role in enhancing energy efficiency and decarbonization. Performing demand curtailment will psychologically disturb end-customers' comfort and affect decision-making. The penetration of battery energy storage systems (BESSs) in electricity grids introduces another response resource to the grid operator (GO). Therefore, it's important to investigate the effect of different customer psychological factors (CPFs) on incentive-based demand response (IBDR) strategy in the system with diversified response resources including BESSs. Behavioral economics (BE) interprets individual behavior from psychology and provides insights to behavior modeling. Therefore, this paper applied BE to incorporate CPFs, such as the endowment effect and time-discounting effect. Furthermore, to bring the value of CPFs to the system level, an IBDR model considering CPFs and BESSs (CE-IBDR) is proposed by following the Stackelberg game theory. Upon the participation of load aggregators (LAs) and BESSs operator (EO) in IBDR, the model extends two-party hierarchical levels to four-party spinning from the GO, EOs, LAs and end-customers by extending the two-party Stackelberg game to a two-loop Stackelberg game. Results show that without incorporating CPFs into the model will result deviation in interpreting customer behavior. BESSs is preferred reponse resource than load reduction due to the pressure to incentive end-customers with high endowment valuation. •Incorporation of CPFs from BE into a traditional techno-economic model of IBDR.•The proposed CE-IBDR model brings the value of CPFs on IBDR in a new electricity system with BESSs.•IBDR incentive strategy incorporating CPFs and BESSs is developed from the perspective of GO.•A two-loop Stackelberg game is applied to capture the interactions among hierarchical DR participators.