Electricity cost reduction through time-varying pricing with game theoretical scheduling for household consumers

Master's assignment
Student Can Arslan
Committee Ir. V. Bakker, Dr. B. Roorda and Dr. M.J. Arentsen
Programme Financial Engineering and Management - University of Twente
Finished August 2012


Electricity cost reduction for household consumers is researched in this thesis through real-time electricity pricing scheme with game-theoretical demand-side management and later, implications of home electricity generation is researched economically. Four different methodologies are followed during this thesis. These methodologies are shortly described:

The first one is statistical bottom-up modelling of electricity demand profiles. Before starting with research questions, it is important to build electricity demand profiles for households. Two-week demand profile of ten households for every season is generated by ussing bottom-up electricity demand profile simulation program based on (Richardson I., Thomson, Infield, & Clifford, 2010).

Then, fixed pricing scheme is compared to time-varying pricing scheme by a simple micro-economic theory that the electricity market behaves in competition and in competitive markets, firms are free to set price and quantity; if a farm sets a price above prevailing market price, its profits will be needlessly lost, since it can get as many customers as it wants by pricing at the market price (Varian, 1992). In fixed pricing scheme, there will be a single retail market price regardless of how much end-users consume electricity. When the retail price of electricity does not vary over time, a wholesale seller's attempt to exercise wholesale market power and raise wholesale prices has no short-run impact on quantity since end-use customers do not see a change in the retail price. With time-varying prices demand chages are reflected in the wholesale price, an attempt to raise wholesael prices will impact retail prices and thus reduce the quantity of power that consumers demand. This customer response reduces the profitability of raising wholesale prices and, thus, discourages the exercise of market power (Borenstein, 2005). Given the microeconomic theory, a new real-time pricing scheme is suggested for the end-users.

Real-time pricing shows electricity prices for every hour of the day. End-users have shiftable appliances, which can be turned on by electricity scheduler. If all the consumers move to off-peak price hours with similar pattern, when the electricity prices are lowerm there could be a new peak demand. This new peak demand, which is called "re-bound effect", will increase the electricity price for next hours. Scheduling consumption of end-users with game theoretical model prevents "re-bound effect". A non-cooperative game theoretical model to schedule "shiftable appliances" of consumers is suggested.

At last, payback period of PV solar panels is compared in case of fixed pricing and real-time pricing. This comparison shows us how the real-time pricing can help in PV solar panels market.


Borenstein, S. (2005). Time-Varying Retail Electricity Prices: Theory and Practice. In J. Griffin, & S.L. Puller, Electricity Deregulation: Choices and Challenges (pp. 317-358). Chicago: University of Chicago Press.

Richardson, I., Thomson, M., Infield, D., & Clifford, C. (2010). Domestic electricity use: A high-resolution energy demand model. Energy and Buildings, 41(7), 781-789.

Varian, H. (1992). Microeconomics Analysis (3rd Edition ed.). New York: W. W. Norton&Company.