A New Pricing Mechanism for Optimal Load Scheduling in Smart Grid

Abstract

In a residential demand response program, lack of users’ participation can significantly impair program effectiveness. For this purpose, an incentive-based demand response (DR) program is designed and users’ decision to participate is analyzed in a day-ahead time horizon. In this paper, we first defined a quasiconvex cost function, which accounts for a predetermined base-load price. Then, a DR scheme introduced to shift customers load and minimize their cost. Subsequently, a social pricing/billing mechanism is proposed that is correlated with the overall load in the system. The proposed pricing/billing mechanism leads to a game between consumers, hence the users’ strategies are investigated under this new mechanism. To capture whether inefficiencies exist in current DR programs that stem from inexperienced or irrational users, we analyze our DR program using game theory under expected utility theory and prospect theory (PT). The numerical results suggest that our proposed price function and billing mechanism is effective to control customer consumption pattern with the desired norm imposed by the majority population. In particular, the behavior of customers differs when irrationality added to them under PT framework.