Personalized retail pricing design for smart metering consumers in electricity market

In the current deregulated electricity market, flexible consumers are more active in participating in market activities via the representation of electricity retailers. However, without an effective communication infrastructure, the connection between retailers and the consumers they serve is incomplete. Nowadays, smart meters are being rolled out worldwide to enhance the connection and data exchanges between retailers and consumers. Specifically, smart meters enable retailers to provide customers with detailed information about retail tariffs and their energy usage at different times of the day, which in turn enables customers to manage their energy use more proactively. This paper drops this assumption and makes use of data acquired from smart meters to design a personalized retail pricing scheme for different types of consumers. To formulate this problem, a bi-level optimization model is proposed, with the upper-level problem representing the pricing decision made by the retailer and two lower-level problems representing the demand response of consumers and the wholesale market clearing process, respectively. Afterward, we convert this bi-level optimization model into a single-level mathematical program with equilibrium constraints by using its Karush Kuhn Tucker optimality conditions and complementary conditions. The scope of the examined case studies is fourfold. First, consumers are classified based on their daily load profiles using the advanced clustering method. Second, the physical benefit of fully exploring the consumer’s demand flexibility as well as the economic benefits of increasing retailers’ profitability and reducing consumers’ energy bills are evaluated with respect to the traditional uniform retail pricing scheme. Third, the impacts of consumers’ demand flexibility on electricity market outcomes and business cases are investigated. Finally, the proposed personalized retail pricing scheme is verified to relieve the strategic retailer’s market power reduction caused by the flexibility of demand, which is beneficial to the retailer’s profitability.