Current electricity tariffs for retail rarely provide incentives for intelligent demand response of flexible customers. Such customers could otherwise contribute to balancing supply and demand in future smart grids. This paper proposes an innovative risk-sharing tariff to incentivize intelligent customer behavior. A two-step parameterized payment scheme is proposed, consisting of a prepayment based on the expected consumption, and a supplementary payment for any observed deviation from the anticipated consumption. Within a gametheoretical analysis, we capture the strategic conflict of interest between a retailer and a customer in a two-player game, and we present optimal, i.e., best response, strategies for both players in this game. We show analytically that the proposed tariff provides customers of varying flexibility with variable incentives to assume and alleviate a fraction of the balancing risk, contributing in this way to the uncertainty reduction in the envisioned smart-grid.

Additional Metadata
Project Stable and scalable decentralized power balancing systems using adaptive clustering
Conference International Joint Conference on Artificial Intelligence
Grant This work was funded by the The Netherlands Organisation for Scientific Research (NWO); grant id nwo/408-13-012 - Stable and scalable decentralized power balancing systems using adaptive clustering
Citation
Methenitis, G, Kaisers, M, & La Poutré, J.A. (2016). Incentivizing intelligent customer behavior in smart-grids: a risk-sharing tariff & optimal strategies. In IJCAI International Joint Conference on Artificial Intelligence (pp. 380–386).