Distributed multi-temporal risk management approach to designing dynamic pricing

Due to the nature of the power system and market, there always exist physical and financial risks both in the long run at the planning stage, and in the short run at the operation stage. Many attempts to minimize these risks from the demand side so far have failed because of the lack of information on the true value of demand resources to the system. In this paper, we attempt to tackle these problems by proposing a framework where the system, load serving entities, and the end-users exchange the right information on the system condition (represented by the price) and the energy consumption with respect to it (represented by the demand function). This information should be exchanged through different layers of the market ranging from the endusers on the bottom to the system operator at the top. The information should also be presented in different timeframes so that it captures the right signals for different purposes, such as long-term planning on energy efficiency and short-term energy balance of supply and demand. We present the mathematical formulation of this framework as a decision making of each entity.