Load adaptive pricing: An emerging tool for electric utilities

Abstract

Motivated by the importance of the peak load problem faced by the electric utility industries; in this paper we analyze several different electricity pricing schemes from a game theoretic point of view. Recognizing the limit of the traditional peak load pricing formulation and the persuasive breakthroughs in microelectronic technology, we introduce a philosophy in which supply and demand respond to each other through prices and consumptions, and the utility company sells power at real-time rates. We call it load adaptive pricing. By itself, the concept of load adaptive pricing is not new. The contribution of this paper is the formulation and resolution of this idea as a closed-loop dynamic Stackelberg game problem. The central part of this problem is how to choose appropriate incentives (i.e., pricing strategies) so that customers can be induced to behave co-operatively and thus achieve the team optimum. In this paper, the load adaptive pricing problem is solved for a particular producer/consumer model. We demonstrate that it is possible for the utility company to induce the customer to behave cooperatively to achieve the team optimum. We also show that in steady state, our solution converges and the system is stable.