Convex hull pricing for demand response in electricity markets

Naoki Ito, Akiko Takeda, Toru Namerikawa

Research output: Chapter in Book/Report/Conference proceedingConference contribution

4 Citations (Scopus)

Abstract

Dynamic pricing (a.k.a. real-time pricing) is a method of invoking a response in demand pricing electricity at hourly (or more often) intervals. Several studies have proposed dynamic pricing models that maximize the sum of the welfares of consumers and suppliers under the condition that the supply and demand are equal. They assume that the cost functions of suppliers are convex. In practice, however, they are not convex because of the startup costs of generators. On the other hand, many studies have taken startup costs into consideration for unit commitment problems (UCPs) with a fixed demand. The Lagrange multiplier of the UCP, called convex hull pricing (CHP), minimizes the uplift payment that is disadvantageous to suppliers. However, CHP has not been used in the context of demand response. This paper presents a new dynamic pricing model based on CHP. We apply CHP approach invented for the UCP to a demand response market model, and theoretically show that the CHP is given by the Lagrange multiplier of a social welfare maximization problem whose objective function is represented as the sum of the customer's utility and supplier's profit. In addition, we solve the dual problem by using an iterative algorithm based on the subgradient method. Numerical simulations show that the prices determined by our algorithm give sufficiently small uplift payments in a realistic number of iterations.

Original languageEnglish
Title of host publication2013 IEEE International Conference on Smart Grid Communications, SmartGridComm 2013
Pages151-156
Number of pages6
DOIs
Publication statusPublished - 2013 Dec 1
Event2013 IEEE International Conference on Smart Grid Communications, SmartGridComm 2013 - Vancouver, BC, Canada
Duration: 2013 Oct 212013 Oct 24

Publication series

Name2013 IEEE International Conference on Smart Grid Communications, SmartGridComm 2013

Other

Other2013 IEEE International Conference on Smart Grid Communications, SmartGridComm 2013
CountryCanada
CityVancouver, BC
Period13/10/2113/10/24

ASJC Scopus subject areas

  • Hardware and Architecture

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  • Cite this

    Ito, N., Takeda, A., & Namerikawa, T. (2013). Convex hull pricing for demand response in electricity markets. In 2013 IEEE International Conference on Smart Grid Communications, SmartGridComm 2013 (pp. 151-156). [6687949] (2013 IEEE International Conference on Smart Grid Communications, SmartGridComm 2013). https://doi.org/10.1109/SmartGridComm.2013.6687949