Optimal demand response based on utility maximization in power networks

Demand side management will be a key component of future smart grid that can help reduce peak load and adapt elastic demand to fluctuating generations. In this paper, we consider households that operate different appliances including PHEVs and batteries and propose a demand response approach based on utility maximization. Each appliance provides a certain benefit depending on the pattern or volume of power it consumes. Each household wishes to optimally schedule its power consumption so as to maximize its individual net benefit subject to various consumption and power flow constraints. We show that there exist time-varying prices that can align individual optimality with social optimality, i.e., under such prices, when the households selfishly optimize their own benefits, they automatically also maximize the social welfare. The utility company can thus use dynamic pricing to coordinate demand responses to the benefit of the overall system. We propose a distributed algorithm for the utility company and the customers to jointly compute this optimal prices and demand schedules. Finally, we present simulation results that illustrate several interesting properties of the proposed scheme.