Pricing energy in a multi-utility market

Abstract

We present a solution to the problem of tariff design for an energy supplier (utility). The tariffs for electricity and - optionally - heat created with our pricing model are optimal in terms of the utility's profit and take into account the consumers' predicted behavior, their load curve, the utility's generation prices, and prices for trading electricity on a day-ahead market like the European Energy Exchange (EEX). Furthermore, we analyze the repercussions of different assumptions about consumer behavior on a simulated market with four competing utilities. Consumer demand is modeled using an attraction model that reflects consumer inertia. Consumers will not always change their supplier, even if the total energy bill could be reduced by doing so: First, motivation to search for lower prices and to actually switch one's supplier is low, given the small possible savings. Second, legal constraints may demand a minimal contract duration in some countries. The resulting nonlinear profit optimization problem of the suppliers is solved with a genetic algorithm. By varying the attraction parameters and thus representing different degrees of inertia, we observe different developments of the market.