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In modern buildings renewable energy generators and storage devices arespreading, and consequently the role of the users in the power grid is shiftingfrom passive to active. We design a demand response scheme that exploits theprosumers' flexibility to provide ancillary services to the main grid. Wepropose a hierarchical scheme to coordinate the interactions between thedistribution system operator and a community of smart prosumers. The frameworkinherits characteristics from price-based and incentive-based schemes and itretains the advantages of both. We cast the problem as a Stackelberg game withthe prosumers as followers and the distribution system operator as leader. Wesolve the resulting bilevel optimization program via a KKT reformulation,proving the existence and the convergence to a local Stackelberg equilibrium.Finally, we provide numerical simulations to corroborate our claims on thebenefits of the proposed framework.

A Stackelberg game for incentive-based demand response in energy markets