Dynamic Pricing of Power in Smart-Grid Networks

TL;DR

This paper models the problem of dynamic power pricing in smart grids within a network utility maximization framework, analyzing optimal pricing strategies and demand responses over a finite horizon.

Contribution

It introduces a structured analysis of optimal dynamic pricing and demand in smart grids, including a greedy solution approach and its optimality gap.

Findings

Characterization of optimal dynamic prices in smart grids.

Development of a greedy solution method for the NUM problem.

Analysis of the optimality gap between greedy and optimal solutions.

Abstract

In this paper we introduce the problem of dynamic pricing of power for smart-grid networks. This is studied within a network utility maximization (NUM) framework in a deterministic setting with a single provider, multiple users and a finite horizon. The provider produces power or buys power in a (deterministic) spot market, and determines a dynamic price to charge the users. The users then adjust their demand in response to the time-varying prices. This is typically categorized as the demand response problem, and we study a progression of related models by focusing on two aspects: 1) the characterization of the structure of the optimal dynamic prices in the Smart Grid and the optimal demand and supply under various interaction with a spot market; 2) a greedy approach to facilitate the solution process of the aggregate NUM problem and the optimality gap between the greedy solution and the optimal one.