Addressing demand response concentration under dynamic pricing

Abstract

Dynamic pricing constitutes a promising approach for realizing the significant potential of flexible demand. However, naive application of dynamic pricing leads to demand response concentration at the lowest-priced periods, yielding significant new demand peaks and inefficient system operation. A previously proposed measure imposing a flexibility restriction on flexible loads may not be acceptable by their users. This paper proposes an alternative measure, where this hard flexibility restriction is replaced by a soft, non-linear price signal, penalizing the extent of flexibility utilized by the loads. This signal is customized to the properties of the different flexible load types, by penalizing the square of the demand and the duration of cycle delay of loads with continuously adjustable power levels and deferrable cycles respectively. Regarding the former type, this non-linear pricing approach is shown to outperform the flexibility restriction approach in flattening the demand profile and achieving efficient system operation. Regarding the latter type, randomization of the non-linear price is shown to bring significant additional benefits. These contributions are supported by case studies on a model of the UK system, with smart-charging electric vehicles and wet appliances with delay functionality used as representative examples of the above flexible load types.