Impact of dynamic pricing schemes on generation cost in the electricity retail market

Abstract

Reducing peak demand is critically important in smartgrid as a significant fraction of the electric grids capital and operational expenses is affected by the peak power demands. Time of Use (ToU) and Real Time Pricing (RTP) pricing schemes have been used by power system operators to incentivize customers to reduce their peak energy demands during peak hours. However, both schemes have their disadvantages. Recently, we introduce a new incentive-driven scheme called Minimax which encourages customers to flatten their daily load profiles such that they can reduce their electricity bill and help lowering the aggregate peak power demands. Via simulation studies using two real energy usage datasets, we have shown that customers can save 13–17% of their electricity bills if the MiniMax scheme is used but only 2–3% if RTP or ToU scheme is used. In this paper, we are interested in exploring how the optimized profiles generated from our optimized scheduler under the Minimax and ToU pricing schemes impact the generation cost using the IEEE 14-bus system. Our studies based on two different generation cost structures show that the generation cost is more expensive using the optimized profiles generated by the ToU scheme but cheaper using those generated by the Minimax scheme.