Dynamic Pricing Mechanisms for Load Management in Smart Grids

Abstract

In this research study, we introduce an innovative approach to managing load distribution in smart grid infrastructures. The primary objective is to regulate power demand during peak hours, utilizing dynamic pricing mechanisms. Unlike traditional centralized systems, our proposed solution operates on a distributed paradigm, deriving its foundation from the rational actions of grid users. To effectively analyze the prevailing scenario, we employ a game-theoretic model to understand the behaviors of users, who, in our model, act primarily out of self-interest. An initial observation indicates that if left to their own devices, these selfish users might make decisions that could be detrimentally arbitrary to the system's efficient functioning.In response to this challenge, we introduce a pricing mechanism designed to enhance the allocation quality influenced by these self-centered users. We begin by establishing the validity of our approach through a proof that the game, even with the existence of selfish users, will reach a Nash equilibrium. This equilibrium ensures that no player can benefit by deviating unilaterally from their chosen strategy after considering an opponent's choice. Following this, we demonstrate that by incorporating our dynamic pricing strategy, the resulting allocation's peak demand is effectively managed. Specifically, the peak of this allocation, even in the worst-case scenario, will not exceed double the value of an ideal or optimal peak. This result underscores the efficiency and efficacy of our proposed mechanism in maintaining a balance between user behavior and systemic demand, ensuring a more stable and sustainable smart grid infrastructure.