Designing Pricing Incentive Mechanism for Proactive Demand Response in Smart Grid

• Published in: 2018 IEEE International Conference on Communications (ICC) pp. 1 - 6
• Main Authors: Zhou, Yanglin, Ci, Song, Li, Hongjia, Yang, Yang
• Format: Conference Proceeding
• Language: English
• Published: IEEE 01-05-2018
• Subjects: Companies; Home appliances; Power demand; Power transmission; Pricing; Schedules
• ISSN: 1938-1883
• DOI: 10.1109/ICC.2018.8422424

Demand side management will be a key component of future smart grid that can help reduce peak load and adapt elastic demand to fluctuating generations. In this paper, we consider customers that operate different appliances and propose a demand response approach based on utility maximization. Each appliance provides a certain benefit depending on the pattern or volume of power it consumes. Each customer wishes to optimally schedule its power consumption so as to maximize its individual net benefit subject to various consumption and power flow constraints. We show that there exist time-varying prices that can align individual optimality with social optimality, i.e., under such prices, when the customers selfishly optimize their own benefits, they automatically also maximize the social welfare. The utility company can thus use dynamic pricing to coordinate demand responses to the benefit of the overall system. We propose a distributed algorithm for the utility company and the customers to jointly compute this optimal prices and demand schedules. Finally, we present simulation results that illustrate several interesting properties of the proposed scheme.