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Private households constitute a considerable share of Europe's electricity consumption. The current electricity distribution system treats them as effectively passive individual units. In the future, however, users of the electricity grid will be involved more actively in the grid operation and can become part of intelligent networked collaborations. They can then contribute the demand and supply flexibility that they dispose of and, as a result, help to better integrate renewable energy in-feed into the distribution grids.
Power systems are increasingly built from distributed generation units and smart consumers that are able to react to grid conditions. Managing this large number of decentralized electricity sources and flexible loads represent a very huge optimization problem. Both from the regulatory and the computational perspective, no one central coordinator can optimize this overall system. Decentralized control mechanisms can, however, distribute the optimization task through price signals or market-based mechanisms. This chapter presents the concepts that enable a decentralized control of demand and supply while enhancing overall efficiency of the electricity system. It highlights both technological and business challenges that result from the realization of these concepts, and presents the state-of-the-art in the respective domains.