Incentivizing Intelligent Customer Behavior in Smart-Grids

Abstract

Current electricity tariffs for retail rarely provideincentives for intelligent demand response of flexiblecustomers. Such customers could otherwisecontribute to balancing supply and demand in futuresmart grids. This paper proposes an innovativerisk-sharing tariff to incentivize intelligentcustomer behavior. A two-step parameterized paymentscheme is proposed, consisting of a prepaymentbased on the expected consumption, and asupplementary payment for any observed deviationfrom the anticipated consumption. Within a gametheoreticalanalysis, we capture the strategic con-flict of interest between a retailer and a customerin a two-player game, and we present optimal, i.e.,best response, strategies for both players in thisgame. We show analytically that the proposed tariffprovides customers of varying flexibility with variableincentives to assume and alleviate a fraction ofthe balancing risk, contributing in this way to theuncertainty reduction in the envisioned smart-grid.