Optimal time-of-use electricity pricing using game theory

Typical user demands of electricity vary throughout the day, which increases the cost to utility companies and decreases the stability of the power system. Time-of-use (TOU) pricing has been proposed as a demand-side management (DSM) method to influence user demands. In this paper, we describe a new approach of optimal TOU pricing strategy based on game theory (GT-TOU). We propose models for costs due to the fluctuating user demands to the utility companies, as well as the user satisfaction measurement because of the difference between the demand and actual load. We design utility functions for the company and the user, and obtain the Nash equilibrium using backward induction and iterative methods. Numerical example shows that our method is effective in leveling the user demand by setting optimal TOU prices, in potentially increasing the profit of the utility companies and ensuring overall user benefit.