Supply and demand in smart grid: A closed-loop pricing strategy

How to design a dynamic pricing strategy in smart grid is an important but challenging problem due to the uncertainty of customers´ demand and their reaction to the price. Most of the existing pricing strategies depend on the prediction of customers´ demand and their reaction to the price, thus are not robust enough due to the prediction which may cause a high cost to the supplier. In this paper, we propose a closed-loop pricing algorithm (CPA), which can largely decrease the cost and result in both costing savings for customers and higher profit for the supplier, and thus achieves a win-win solution. We provide sufficient conditions to guarantee the win-win solution for customers and the supplier. We also prove that CPA can obtain a stable price. Extensive simulations confirm with our analysis and show that the combined cost saving and profit gain of both customers and the supplier can be 76% by the proposed algorithm compared with the prediction-based pricing algorithm.