  In order to manage peak-grid events, utilities run incentive-based demand
response (DR) programs in which they offer an incentive to assets who promise
to curtail power consumption, and impose penalties if they fail to do so. We
develop a probabilistic model for the curtailment capability of these assets,
and use it to derive analytic expressions for the optimal participation (i.e.,
promised curtailment) and profitability from the DR asset perspective. We also
investigate the effects of risk-aversion and curtailment uncertainty on both
promised curtailment and profit. We use the probabilistic model to evaluate the
benefits of forming asset aggregations for participation in DR programs, and
develop a numerical test to estimate asset complementarity. We illustrate our
results using load data from commercial office buildings.
