Matching of Everyday Power Supply and Demand with Dynamic Pricing: Problem Formalisation and Conceptual Analysis

TL;DR

This paper formalizes the problem of using dynamic pricing to align electricity supply and demand amid increased renewable energy sources, discussing algorithmic components for effective implementation.

Contribution

It provides a detailed formalization of the dynamic pricing decision-making problem and discusses algorithmic components for designing effective pricing policies.

Findings

Formalization of the dynamic pricing problem

Discussion of forecasting models for demand response

Analysis of statistical modeling for demand-price relationship

Abstract

The energy transition is expected to significantly increase the share of renewable energy sources whose production is intermittent in the electricity mix. Apart from key benefits, this development has the major drawback of generating a mismatch between power supply and demand. The innovative dynamic pricing approach may significantly contribute to mitigating that critical problem by taking advantage of the flexibility offered by the demand side. At its core, this idea consists in providing the consumer with a price signal which is evolving over time, in order to influence its consumption. This novel approach involves a challenging decision-making problem that can be summarised as follows: how to determine a price signal maximising the synchronisation between power supply and demand under the constraints of maintaining the producer/retailer's profitability and benefiting the final consumer at the same time? As a contribution, this research work presents a detailed formalisation of this particular decision-making problem. Moreover, the paper discusses the diverse algorithmic components required to efficiently design a dynamic pricing policy: different forecasting models together with an accurate statistical modelling of the demand response to dynamic prices.