Feasibility of Using Discriminate Pricing Schemes for Energy Trading in Smart Grid

TL;DR

This paper explores a discriminate pricing scheme in smart grids to incentivize energy users with small resources or high inconvenience sensitivity to participate in energy trading, aiming to reduce costs and improve utility.

Contribution

It models a two-stage Stackelberg game for energy trading with discriminate pricing based on user inconvenience, providing a unique equilibrium analysis and closed-form pricing expressions.

Findings

The game has a unique sub-game perfect equilibrium.

Discriminate pricing improves participation of sensitive users.

Numerical results demonstrate cost reduction and utility benefits.

Abstract

This paper investigates the feasibility of using a discriminate pricing scheme to offset the inconvenience that is experienced by an energy user (EU) in trading its energy with an energy controller in smart grid. The main objective is to encourage EUs with small distributed energy resources (DERs), or with high sensitivity to their inconvenience, to take part in the energy trading via providing incentive to them with relatively higher payment at the same time as reducing the total cost to the energy controller. The proposed scheme is modeled through a two-stage Stackelberg game that describes the energy trading between a shared facility authority (SFA) and EUs in a smart community. A suitable cost function is proposed for the SFA to leverage the generation of discriminate pricing according to the inconvenience experienced by each EU. It is shown that the game has a unique sub-game perfect equilibrium (SPE), under the certain condition at which the SFA's total cost is minimized, and that each EU receives its best utility according to its associated inconvenience for the given price. A backward induction technique is used to derive a closed form expression for the price function at SPE, and thus the dependency of price on an EU's different decision parameters is explained for the studied system. Numerical examples are provided to show the beneficial properties of the proposed scheme.