Market Model for Demand Response under Block Rate Pricing

TL;DR

This paper introduces a market model for demand response using a two-block rate pricing scheme, demonstrating that under certain conditions, the system reaches a unique and efficient equilibrium that maximizes social welfare.

Contribution

It proposes a novel market model with a distributed algorithm for optimal block rate pricing in demand response, ensuring efficiency and social welfare maximization.

Findings

The equilibrium is unique and efficient under quadratic utility costs.

The proposed distributed algorithm effectively finds optimal pricing and load distribution.

Numerical results validate the effectiveness of the scheme.

Abstract

Renewable sources are taking center stage in electricity generation. However, matching supply with demand in a renewable-rich system is a difficult task due to the intermittent nature of renewable resources (wind, solar, etc.). As a result, Demand Response (DR) programs are an essential part of the modern grid. An efficient DR technique is to devise different pricing schemes that encourage customers to reduce or shift the electric load. In this paper, we consider a market model for DR using Block Rate Pricing (BRP) of two blocks. We use a utility maximization approach in a competitive market. We show that when customers are price taking and the utility cost function is quadratic the resulting system achieves an equilibrium. Moreover, the equilibrium is unique and efficient, which maximizes social welfare. A distributed algorithm is proposed to find the optimal pricing of both blocks and the load. Both the customers and the utility runs the market. The proposed scheme encourages customers to curtail or shift their load. Numerical results are presented to validate our technique.