Price Discounts and Consumer Load-Shifting Behavior in the Smart Grid

Abstract

This paper studies the impact of consumers' individual attitudes towards load shifting in electricity consumption in an electricity market that includes a single electricity provider and multiple consumers. A Stackelberg game model is formulated in which the provider uses price discounts over a finite number of periods in order to induce incentives for consumers to shift their peak period loads to off-peak periods. The equilibrium outcomes are investigated and the analytical results are derived for this type of market, where not only the response behaviors of independent consumers are diverse but also an individual consumer's valuation of electricity consumption varies across periods. The obtained results demonstrate that consumer sensitivities to price discounts significantly impact price discounts and load-shifts, which are not necessarily monotonic. The authors also observe that a diverse market leads to lower peak-to-average values and provider payoffs compared to a homogenous market unless the latter one is composed of consumers with relatively lower inconvenience costs during the peak periods.