Consumption Strategies and Tariff Coordination for Cooperative Consumers in a Deregulated Electricity Market - Optimal Reactions Under Time Varying Electricity Tariffs

As the trend in electricity markets is strongly towards deregulation, new players, new rules and new behaviors will continue to emerge. Sellers will range from the traditional utility to the opportunistic broker, and endbuyers will have more possibilities to shop to get the best deal for their different energy needs. If a coalition of buyers can be worth, then it will be constituted. One of the energy needs, especially important in Nordic countries such as Finland, is electrical space heating. We consider here the consumption strategies of a coalition of electricity buyers for residential space heating and its optimal pricing. The decision problem they face is to find the optimal use of their space heating system with respect to change in electricity price and to their tolerance in indoor temperature variation. A mathematical model for this problem is defined. Physical parameters of houses involved are gathered from an experimental field test conducted in Helsinki during the winter 1996. The coalition of buyers relies on a single supplier (utility, power marketer or broker) for their need of electricity. The electricity seller is seeking the Pareto optimal solution for him and the coalition, because competition constrains him to propose attractive deals. We consider incomplete information setting, leading to two tariff patterns (real-time and time-of-use pricing). Under complete information, the seller knows the utility function of each consumer, but since this knowledge is not always available, incomplete information setting is considered. Moreover, different models with identified physical parameters are constructed to simulate the existing electricity market with responding, normal and non-responding consumer groups. An R. P. Hämäläinen, J. Mäntysaari, J. Ruusunen and Pierre-Olivier Pineau 2/21 Consumption Strategies and Tariff Coordination in a Deregulated Electricity Markets WORKING PAPER: Version: 11.5.1998 optimal real-time pricing (spot tariff) is calculated. This optimal spot tariff is used as reference point to estimate the nearest TOU tariff.