A game-theoretic approach to optimize the Time-of-Use pricing considering customer behaviors

Time-of-Use (TOU) pricing is an electricity demand response program with great potential to shave the peak demand and eliminate the need for extra power plants. It is necessary to distinguish which TOU program will lead to profitable results to the utility and customers when the customer behaviors and real work shifts are considered. In this paper, a game-theoretic approach is introduced to formulate the problem using a two-layer mathematical programming model, which is solved by the backward induction to gain the Nash-equilibrium. The case study results show that the equilibrium can create a win-win situation for the utility and customers, i.e. the utility increases its profit and the customer reduces its cost. Among different customers, the utility can focus on the customer with a small penalty factor and a large auxiliary coefficient, who prefers to join the TOU program. Even only a small portion of customers joins the TOU program, large improvements in utility's profit can be made.