Dynamic pricing efficiency with strategic retailers and consumers: An analytical analysis of short-term market interactions

Abstract

Demand response programmes reduce peak-load consumption and could increase off-peak demand as a load-shifting effect often exists. In this research we use a three-stage game to assess the effectiveness of dynamic pricing regarding load-shifting and its economic consequences. We consider a retailer's strategic supplies on forward or real time markets, when demand is uncertain and with consumer disutility incurred from load-shedding or load-shifting. Our main results show that a retailer could internalize part of demand uncertainty by using both markets. A retailer raises the quantities committed to the forward market if energy prices or balancing costs are high. If the consumer suffers disutility, then the retailer contracts larger volumes on the forward market for peak periods and less off peak, due to a lower load-shifting effect and lower off-peak energy prices.