Real-Time Pricing Mechanism for Electricity Market with Built-In Incentive for Participation

This paper proposes a game-theoretic approach to design a distributed real-time electricity pricing mechanism. Our approach is novel in that it guarantees individual rationality, meaning that it provides suppliers and consumers with a guaranteed incentive to participate in the real-time pricing market. Such an incentive is devised by offering a time-varying, situation-dependent subsidy that guarantees that a supplier/consumer profits by switching from a fixed-price contract to the real-time pricing contract. Although we assume that suppliers and consumers decide supply and demand quantities in a fully distributed manner to maximize their own profit, the proposed mechanism guarantees under moderate conditions that the market converges through an iterative process to a Nash equilibrium that maximizes social welfare. Furthermore, in order to guarantee safe operation of an electrical grid, our pricing mechanism increases stability of load frequency control, and at the same time, achieves supply-demand equilibrium by explicitly taking into account an equality constraint through dual decomposition method. We empirically demonstrate by simulations the individual rationality of the proposed mechanism as well as the convergence to supply-demand equilibrium.