The value of aggregation under minimax pricing scheme in the electricity retail market

Abstract

The electric grid's capital and operational expenses are significantly affected by the peak power demands. In an effort to reduce peak electricity demands, electricity market analysts and researchers have designed different pricing schemes that provide a certain incentive to end-users to reduce their usage during what is considered as peak hours. Among those schemes, Time of Use (ToU) and Real Time Pricing (RTP) have been well researched and implemented. However, it became noteworthy that the incentive provided by both schemes to customers is weak. In addition, it has been reported that they can even lead to peak migration instead of reduction. Recently, we introduced a new incentive-driven scheme named Minimax with the aim to incentivize customers to flatten their daily load profiles and help lower the aggregate peak power demands. Simulation studies showed 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 addition, Minimax can save 10% of the generation cost. The benefit of Minimax is threefold: consumer bill reduction, peak power reduction, and generation cost reduction. In our previous work related to Minimax, we used aggregated household energy data. In this paper, we are interested in exploring the value of aggregation under the Minimax pricing mechanism. We evaluate the impact of aggregation on energy bill reduction, power factor, voltage profile and generation cost reduction using the IEEE 33-bus distribution system. Our studies based on piecewise linear generation cost function show that, for the same total load, larger aggregate groups achieve lower energy bill, lower generation cost, lower aggregate peak demand and better voltage profile. Aggregation results in 40% peak power reduction, 6% consumers' bill reduction, 13% supply cost reduction and no voltage bound violation.