Demand Response Management via Real-Time Electricity Price Control in Smart Grids

This paper proposes a real-time pricing scheme that reduces the peak-to-average load ratio through demand response management in smart grid systems. The proposed scheme solves a two-stage optimization problem. On one hand, each user reacts to prices announced by the retailer and maximizes its payoff, which is the difference between its quality-of-usage and the payment to the retailer. On the other hand, the retailer designs the real-time prices in response to the forecasted user reactions to maximize its profit. In particular, each user computes its optimal energy consumption either in closed forms or through an efficient iterative algorithm as a function of the prices. At the retailer side, we develop a Simulated-Annealing-based Price Control (SAPC) algorithm to solve the non-convex price optimization problem. In terms of practical implementation, the users and the retailer interact with each other via a limited number of message exchanges to find the optimal prices. By doing so, the retailer can overcome the uncertainty of users' responses, and users can determine their energy usage based on the actual prices to be used. Our simulation results show that the proposed real-time pricing scheme can effectively shave the energy usage peaks, reduce the retailer's cost, and improve the payoffs of the users.