A Fair Pricing Mechanism in Smart Grids for Low Energy Consumption Users

Abstract

Based on energy demand, consumers can be broadly categorized into low energy consumers (LECs) and high energy consumers (HECs). HECs use heavy load appliances, e.g., electric heaters and air conditioners, and LECs do not use heavy load appliances. Thus, HECs demand more energy compared to LECs. The usage of high energy consumption appliances by HECs leads to peak formation in various time intervals. Different pricing schemes, i.e., time of use (ToU), real time pricing (RTP), inclined block rate (IBR), and critical peak pricing (CPP), have been proposed previously. In ToU, an energy tariff is divided into three blocks, i.e., on-peak (high rates), off-peak (low rates), and mid-peak (between on-peak and off-peak rates) hours, and these rates are applied to all electricity users without distinction. The high energy demand by HECs causes the high peak formation; thus, higher rates should be applied to only HECs rather than all consumers, which is not the case in existing billing mechanisms. LECs are also charged higher rates in on-peak intervals and this billing mechanisms are unjustified. Thus, in this paper, a fair pricing scheme (FPS) based on power demand forecasting is developed to reduce extra bills of LECs. First, we developed a machine learning-based electricity load forecasting method, i.e., an extreme learning machine (ELM), in order to differentiate LECs and HECs. With the proposed FPS, electricity cost calculations for LECs and HECs are based on the actual energy consumption; thus, LECs do not subsidize HECs. Simulations were conducted for performance evaluation of our proposed FPS mechanism, and the results demonstrate LECs can reduce electricity cost up to 11.0075%, and HECs are charged relatively higher than previous pricing schemes as a penalty for their contribution to the on-peak formation. As a result, a fairer system is realized, and the total revenue of the utility company is assured.