Power Grids and Real-Time Pricing

IDSS PIs: Munther Dahleh, Sanjoy Mitter, Mardavij Roozbehani

The increasing demand for energy along with growing environmental concerns have led to a national agenda for engineering modern power grids with the capacity to integrate renewable energy resources on a large scale. In this paradigm shift, demand response and dynamic pricing are often considered a means of mitigating the uncertainties of renewable energy generation and improving the system’s economic and environmental efficiency. However, this real-time coupling of supply and demand creates significant challenges for guaranteeing reliability and robustness in the power system. Research by IDSS faculty Munther Dahleh, Sanjoy Mitter, and Mardavij Roozbehani addresses these challenges by providing a framework for modeling and analysis of the dynamics of supply, demand, and clearing prices in a power system with real-time retail pricing and information asymmetry. The team found that new technologies intended to increase reliance on renewable energy could actually result in bringing down the power grid if they are not matched with careful pricing policies. This result indicates the need for a deeper understanding of consumer behavior in response to real-time prices, and a thorough modeling and analysis of the dynamics of the system, based on actual data.

Characterized by passing on the real-time wholesale electricity prices to the end consumers, real-time pricing creates a closed-loop feedback system between the physical layer and the market layer of the system. Dahleh, Mitter, and Roozbehani show that in the absence of a carefully designed control law, such direct feedback can increase sensitivity and lower the system’s robustness to uncertainty in demand and supply. The team found that price volatility can be characterized in terms of the system’s maximal relative price elasticity, defined as the maximal ratio of the generalized price-elasticity of consumers to that of the producers. As this ratio increases, the system may become more volatile. Since new demand response technologies increase the price-elasticity of demand, and since increased penetration of distributed generation can also increase the uncertainty in price-based demand response, the theoretical findings suggest that the architecture under examination can potentially lead to increased volatility. This research highlights the need for assessing architecture systematically and in advance, in order to optimally strike the trade-offs between volatility/robustness and performance metrics such as economic efficiency and environmental efficiency.

References and Related Content:

“Volatility of Power Grids under Real-Time Pricing” – IEEE Transactions on Power Systems, November 2012.

“The too-smart-for-its-own-good grid” – MIT News, August 2011.