Piecewise price mechanism to induce demand response in Smart Grid

An effective price mechanism is needed in the Smart Grid to induce demand response. This paper analyses the deficiencies of the traditional price-based demand response mechanism in terms of 1) the information elements in which price is bound with time, and 2) the risk-sharing structure in which consumers bear little price risks. A Piecewise Price based on Equivalent Load (PPEL) mechanism is proposed, in which the fluctuation of wind power is converted to equivalent load, and the electricity pricing is based on tracing the equivalent load. The PPEL is not only reasonable in risk-sharing and risk-controlling, but also effective in reflecting the supply-demand relation and the true value of electricity. This provides strong incentive for wind power integration. The case study based on the 24-hour load profile of a typical summer-day from one province of China and wind power output data from NREL of the U.S. demonstrates the effectiveness of the proposed mechanism.