Optimization of TOU Pricing for the Utility with the Consumers in the Manufacturing Sector

Abstract

Time-of-use (TOU) electricity tariff is one of the most famous programs with great potential to shave the peak demand by encouraging the consumers to shift their power demand from on-peak period to the off-peak period. Although TOU tariffs are already being offered by some utilities, it is not always easy to distinguish which kind of TOU tariff can lead to profitable results to the utility when the consumer behaviors are considered. In this paper, we investigate this problem from the perspective of game theory in order to analyze the impact of TOU structure and optimize the pricing of TOU tariff. The interaction between the utility and consumers is considered to build a Stackelberg Leadership game model which can be solved further by the designed two-layer algorithm. Then, four kinds of TOU structures are compared in the numerical experiments to show when a win-win situation can be obtained, i.e., the utility can improve its profit and the consumer can reduce its cost. The numerical results validate the effectiveness of TOU tariffs compared with the traditional flat rate tariff and also provide the managerial insights for the decision makers to devise the optimal TOU pricing. Based on the research in this paper, the comparison between different tariffs, e.g., the critical-peak-price and real-time-price, can be investigated in the future.