sustainability

Article
An Incentive Based Dynamic Pricing in Smart Grid:
A Customer’s Perspective
Thamer Alquthami 1, * , Ahmad H. Milyani 1 , Muhammad Awais 2 and Muhammad B. Rasheed 3,4, *

1 Electrical and Computer Engineering Department, King Abdulaziz University, Jeddah 21589, Saudi Arabia;
[email protected]
2 Department of Technology, The University of Lahore, Lahore 54000, Pakistan; [email protected]
3 Department of Electronics and Electrical Systems, The University of Lahore, Lahore 54000, Pakistan
4 Computer Engineering Department, University of Alcalá, 28805 Alcalá de Henares, Spain
* Correspondence: [email protected] (T.A.); [email protected] (M.B.R.)

Abstract: Price based demand response is an important strategy to facilitate energy retailers and
end-users to maintain a balance between demand and supply while providing the opportunity to
end users to get monetary incentives. In this work, we consider real-time electricity pricing policy to
further calculate the incentives in terms of reduced electricity price and cost. Initially, a mathematical
model based on the backtracking technique is developed to calculate the load shifted and consumed
in any time slot. Then, based on this, the electricity price is calculated for all types of users to
estimate the incentives through load shifting profiles. To keep the load under the upper limit, the
load is shifted in other time slots in such a way to facilitate end-users regarding social welfare. The





 user who is not interested in participating load shifting program will not get any benefit. Then the
well behaved functional form optimization problem is solved by using a heuristic-based genetic
Citation: Alquthami, T.; Milyani,
A.H.; Awais, M.; Rasheed, M.B. An
algorithm (GA), wwhich converged within an insignificant amount of time with the best optimal
Incentive Based Dynamic Pricing in results. Simulation results reflect that the users can obtain some real incentives by participating in
Smart Grid: A Customer’s the load scheduling process.
Perspective. Sustainability 2021, 13,
6066. https://doi.org/10.3390/ Keywords: demand side management; demand response; load scheduling; real time pricing; genetic
su13116066 algorithm; dynamic incentives

Academic Editors: Sheraz Aslam,

Herodotos Herodotou and Nouman
Ashraf 1. Introduction and Background
The smart grid (SG) is an emerging paradigm shift in power distribution systems
Received: 20 April 2021
Accepted: 21 May 2021
that aims to improve itself using various information and communication technologies.
Published: 27 May 2021
It comprises various intelligent controlling and decision-making systems, which manage
electricity generation, transmission and distribution through two-way communication
Publisher’s Note: MDPI stays neutral
mechanisms [1,2]. In addition, SG allows the integration of distributed and renewable
with regard to jurisdictional claims in
generation facilities to cope with various uncertainties (i.e., energy deficits, blackouts, high
published maps and institutional affil- peaks) that are caused by the energy demand variations and intermittent nature of renew-
iations. ables [3], which helps minimize carbon emissions. This is due to the fact that distributed
renewable energy resources can provide power during stand alone or independent/island
mode to manage power demand with reduced emission. For this purpose, intelligent
autonomous mechanism, blockchain technology and artificial intelligence are key technolo-
gies being widely adopted in recent decades. Furthermore, as distributed generation and
Copyright: © 2021 by the authors.
Licensee MDPI, Basel, Switzerland.
renewable sources can play a key role in managing energy demand, distribution systems
This article is an open access article
can use the flexibility of variable energy resources to improve the underlying capacity of
distributed under the terms and low voltage distribution networks, which can also be referred to as “active distribution
conditions of the Creative Commons systems”. Due to the developments in energy storage technologies, as well as the strong
Attribution (CC BY) license (https:// need to reduce transportation-related costs and emissions [3], the focus on electric vehicles
creativecommons.org/licenses/by/ has been increasing. Electric vehicles need to be recharged at charging stations. Thus,
4.0/). based on the aforementioned justifications, EVs integration has a threefold set of objectives:

Sustainability 2021, 13, 6066. https://doi.org/10.3390/su13116066 https://www.mdpi.com/journal/sustainability

Sustainability 2021, 13, 6066 2 of 17

(i) it can be used for transportation purposes replacing the traditional vehicles due to a
large amount of carbon emissions and abrupt fluctuations in fuel prices; (ii) EVs can also be
used for the transmission of electricity; (iii) the integration of EVs can help with alleviating
the high and rebound peaks majorly caused by high energy extracted during low pricing
hours.
Recent advancement in communication and control technologies has envisioned the
DR programs as an important tool for load management and scheduling. In [4], the authors
used an opportunistic load scheduling technique, which is based on optimal stopping
theory. Each load is assigned a time factor to decide its priority and then threshold criteria is
calculated to find optimal time slot for each individual load. As it is a pure threshold policy.
Therefore, this policy would be unfavorable when energy consumption and market spot
pricing trends are dynamic. A similar work is proposed [5] to schedule residential loads
in conjunction with on-site renewable energy and storage system. A mixed integer linear
programming algorithm is used to solve cost minimization and comfort maximization
problems. A slightly different work is presented [6] for real-time pricing demand response
with fault-tolerant and flexible user enrolment to predict dynamic pricing. This scheme is
relatively efficient in terms of less computational overhead and transmission delay. In [7], a
two layered model for a hybrid energy system is proposed with a demand biding strategy.
Before scheduling the load, a demand bidding based on Nash equilibrium theory is used
to find the optimal pricing involving different stakeholder. Then, a coordinated multiagent
framework is used to ensure the stability of this system with an event triggered mechanism.
The work presented in [8] is devoted to modeling a locational marginal pricing based
demand response using a monotonously decreasing linear function. In [9], a price based
demand response program to schedule the residential load is presented and solved by using
a decision support system. The load is first predicted and then scheduled based on market
price to minimize overall cost. A novel pricing scheme considering residential demand
response, renewable energy and power losses is presented for peak load alleviation [10].
All the generation and demand facilities actively collaborate in a distributed manner to
find the best optimal price without affecting their objectives., where demand response DR
allows the potential users to shift their consumption level or curtail some portion of the
load in response to time-varying dynamic pricing such as time of use (TOU), real-time
pricing (RTP), day-ahead pricing (DAP), and critical peak pricing (CPP) [11]. In [12], a
multiagent based strategy to integrate the flexibility potential of industrial and residential
demand is presented. A particular focus is on considering the cement and metal smelting
industry, where residential and industrial demand is fulfilled through renewable and
grid energy sources, respectively. In [13], a multiagent based load scheduling scheme is
proposed, which utilizes optimal stopping theory to obtain the optimal scheduling instants.
To optimally utilize the grid and renewable energy resources, a heuristic algorithm is used
to solve the load scheduling problem [14]. Furthermore, to maximize user comfort in terms
of scheduling delay, the load is modeled to prioritize comfort over cost and vice versa. To
model the electricity prices, the authors first used a data mining approach to find the load
consumption patterns from historical data using density based clustering with noise [15].
Then, a mixed integer nonlinear programming technique is applied to find electricity prices
over the given time slots. To analyze the performance of this model, the online network
enabled optimization system (NEOS) is used. The work presented in [16] is devoted to
analyzing the advantages and disadvantages of active demand response programs in
relation to residential load management. This work also analyzed the features of the energy
system and highlights the key issues of decentralized energy resources. To reduce the peak
load demand, the work presented in [17] is devoted to modeling the load and heating
ventilation air-conditioning, particularly using demand response. In response to electricity
prices and energy demand requirements, the dynamic demand response controller (DDRC)
adjusts the control set points after every 15 min and shifts the load in case demand exceeds
the predefined threshold. The proposed model is designed in the MATLAB/SIMULINK
environment which is connected with the EnergyPlus model via a building control virtual
Sustainability 2021, 13, 6066 3 of 17

test-bed. In [18], the authors proposed a renewable energy buying back scheme with a
dynamic pricing strategy for energy efficiency in the smart grid. Here, the dynamic pricing
is formulated as a convex optimization duel problem and a day-ahead tune dependent
pricing in a distributed manner is proposed to ensure user privacy. This work is designed
in such a way to provide the benefits to users and utility, dynamically. This is to note
that the benefits offered by the DR program should not be underestimated due to their
great impact on power system reliability and stability through its load management and
optimization. However, the discussed benefits could be undermined due to the negligible
impact of small power consumption loads on power system stability. Additionally, another
drawback associated with the improper implementation of DR programs is the restriction
of some high power rating loads being non-shiftable or non-interruptible [13]. On the other
hand, EVs are becoming one of the potential candidates both in household and charging
lots that draw a large amount of electric power, causing serious concerns from energy
management perspectives [16]. There might be several reasons that exacerbate the utility’s
DR and create rebound peaks due to massive power that is drawn. Firstly, the aggregated
charging loads of EVs can serve as a great resource of demand and capacity to obtain a
noticeable impact on DR programs if there exists coordination among EV charging loads.
Secondly, there should be greater flexibility on shifting and interruption offered by EV
charging operators through the coordination with DR. This could manage EV charging
load demand while fulfilling the key concerns of DR. These parameters are addressed and
modeled in the work proposed in [19].

2. Related Work
Various price-based DR optimization techniques for optimally control residential
loads have been reported in the literature. In [20], a new architecture based on technical
building systems is presented, which is suitable for nearly zero energy building. To
achieve this objective, the active load profiles of all the participants are obtained and
then a building demand response program is used to model and manage the load for
peak alleviation and flatten the load profile. These include model-based optimization
methods [21], heuristic optimization techniques [22,23], where residential load is modeled
with load classification [22] and customer preferences [23]. A stochastic optimization
algorithms taking into consideration the inherent uncertainties in appliance scheduling
time and electricity pricing [24]. To handle these uncertainties, a stochastic technique
involving energy consumption adaptation variable and load consumption patterns is used.
In [25], a probabilistic demand response program is proposed to model the load demand
of residential sector. The main objective is to analyze the operational objectives used to
balance the total cost. The stochastic optimization techniques provide the statistical results
of the energy consumption of residential appliances. However, these algorithms are unable
to guarantee an efficient DR policy from a day ahead perspective. On the other hand,
model-based DR programs can guarantee the DR policy if the accurate load and patterns
are available. However, a big challenge is how to get a correct estimate of the energy
demand and usage patterns of residential loads. Because the energy consumption patterns
cannot be fixed due to variable habits of energy consumers. In the third category, where
home appliances are scheduled in response to dynamic prices using heuristic optimization
methods. It is mentioned that optimal results in terms of cost and peak to average ratio
reductions can be achieved with compromise on discomfort. Because, unlike electricity
cost minimization, the comfort/social welfare maximization are two different objectives
and cannot be achieved at the same time.
Moreover, the model-based DR schemes are developed based on simplified energy
consumption models. In [26], the energy consumption of a residential house is modelled
using simplified conduction heat transfer equations. In [27], the authors use a quasi-steady
state approach for the estimation of a day-ahead electricity demand in the DR market.
In [2], the authors adopt a model predictive control strategy that employs the model of
building dynamics based on a thermal resistance-capacitance network. A low voltage
Sustainability 2021, 13, 6066 4 of 17

residential load model based on price based DR has been proposed in [28]. In this work,
high-resolution load models were developed by combing Monte Carlo Markov chain based
bottom-up demand models, time-variant load model, shot water demand models and
discrete state-space representation of thermal loads. Then, a price based DR program is
modelled to control the working of all these loads in response to consumers. The model is
useful for predicting the distributed impact of introducing dynamic pricing in the system.
In [29], the authors consider the problems of considering dynamic pricing in the network.
They have used a Stackelberg game approach to model the interactions between end-
users and electricity producers. Then, a comprehensive characterization of the tradeoffs
between consumer surplus and net profit is obtained. They have also analyzed the effects
of renewable energy integration and distributed storage in the system. It is concluded that
all benefits go to energy retailers when the capacity of renewable energy is small. These
are the main conditions where renewable energy systems are used. In another similar
work, the authors consider the problem of variable pricing and load consumption, where
a utility or energy retailer acts as an agent between retailer and consumers [30], whereas
variable pricing is somehow useful for the electricity retailer in stabilizing the electric
network. However, its implementation seems difficult due to the lack of information about
the consumers and associated uncertainties. Similarly, consumers are also more likely to
face the difficulties in establishing their schedules for loads scheduling due to variable
pricing. However, this problem can be tackled by using a reinforcement learning technique
without background information of consumers and retailers. In [31], the authors propose a
demand-side management (DSM) technique that takes into consideration user preferences.
The authors identified a trade-off between cost reduction and comfort maximization and
developed a Game theoretic-based algorithm to overcome this trade-off. In [32], the
authors proposed a new pricing mechanism for low and high energy consumption users
based on a time of use pricing policy. The price signal is further divided into different
blocks and forecasted load is scheduled based on these prices to curtail the cost of end
users. Here, an artificial neural network, due to its efficiency, is adopted to forecast the
short term load in a day-ahead fashion. However, a few other algorithms to forecast the
short and long term load are also being widely used by different authors [33]. In another
similar approach, [34], the consumer’s behaviours on each other’s DSM decisions have
been accounted for. Then a non-cooperative game strategy is used, where each user will
decide whether to participate in the DR program or not. Here, to minimize the electricity
cost is the main objective. While in traditional game-theoretic approaches, it is being
considered that consumers are free in taking their decisions. In [35], the authors show that
incoordination between consumer and electricity distributor may create the chances of
high and rebound peaks leading to catastrophic behavior of the electric grid. In this regard,
the authors propose a system-wide framework to coordinate the DR of end-users in a smart
grid. The key objective of this framework is to provide monetary benefits, privacy and
comfort to end-users.

3. Motivation
With population growth and advancements in information and communication tech-
nologies (ICTs), the power demand has also been increased. Consequently, scientists
and researchers have been working to find new energy sources and energy management
mechanisms to meet the growing power demand. In this regard, the SG vision has come
to incorporate distributed and renewable energy resources, advance metering infrastruc-
ture (AMI) [36] and communication protocols, DR programs [20,21], and optimization
techniques to efficiently manage the power demand. In accordance with this, the resi-
dential customers have been provided with the facility to curtail their load or reschedule
the working slots in response to the DR programs and time-varying prices found in the
literature [6–10]. Consequently, the utility obtained the benefits regarding of grid stabil-
ity, while users can gain get the reduced bill as these pricing mechanisms are designed
in such a way that the hourly price factor is calculated based on aggregated load con-
Sustainability 2021, 13, 6066 5 of 17

sumed/demanded in a particular region which is operated under the same DSO. In almost
all the techniques, DSM algorithms are used to schedule the load for energy management
by taking into consideration the load demand, market clearing price, dynamic consumption
trends and optimization algorithms. To achieve the effective outcomes of the DR based
load scheduling programs, the end users are being offered various incentives in terms
of bill reduction, uninterruptible supply of power, and so forth. However, the users are
given the opportunity to decide whether they are willing to participate or not. Unlike the
participating customers, the other customers would not be able to receive any benefit until
they agreed to participate in DR programs by accepting terms and conditions. Furthermore,
it is also understood that there could be multiple energy retailers being operated in some
specific geographic region with dynamic and time varying price signals. The participating
users have to manage their load according to the available price signal without knowing
which other users are impacting on their benefits. For example, the high, medium and
low energy consumers are always charged electricity bills according to the consumed load
based on DR pricing policy. Here, the price signal would remain the same even if the
customers are consuming low or high power over a given time period. Consequently, the
those customers who have maintained a stable load profile and are consuming relatively
less power are not getting the actual benefits or incentives in participating in DR and load
scheduling programs. This is due to the discriminatory price signal being provided by the
market retailer because it is difficult to provide a separate price signal to every user, which
is a limitation of price based DR programs. Thus, by consideration of this problem and the
underlying limitation of the DR program, this work proposes a new mechanism to provide
some incentives to the customers maintaining a balanced load profile.

4. Contribution
This mechanism must possess the characteristics of a fair distribution of prices and
incentives without any discrimination. By considering the aforementioned limitations and
drawbacks, this paper further investigates the price based DR programs and introduces
a novel mechanism for load management and price calculation with dynamic incentives.
By taking into account the existing mechanisms (i.e., TOU, RTP) for calculating electricity
prices, we have designed a new and slightly different method to calculate electricity prices
and incentives based on load consumption and shifting patterns over given time period.
For this purpose, the profiles of each user are obtained via smart meters using advanced
metering infrastructure (AMI) [18] and are maintained just like the charging management
system (CMS) in the electric vehicle scenario [28]. Then, by using the proposed mechanism,
the price is calculated whether the user will get the incentives or overpriced signal, which
is independent of each user and load. One of the unique and novel aspects of the proposed
mechanism is that these incentives are non-discriminatory and independent from other
users participating in a load scheduling based incentivise mechanism. These prices rather
depend upon individual consumption trends and the RTP signal over the given time
period. Hence, the proposed mechanism is designed to facilitate the users in reducing high
and rebound peaks by incorporating the upper limit of energy consumption during the
scheduling process. However, this may be inconvenient for those users who intend to use
energy as per their defined schedules to improve the social welfare level. Consequently,
the utility may receive extra benefits in terms of system stability through reliable energy
generation and supply systems. Finally, the developed system model is tested and validated
using the proposed algorithm which presents the idea of calculating dynamic incentives
instead of static and predefined incentives.

5. Characterizing DR
As understood, electricity cannot be stored at large scale power systems due to
physical limitations and constraints. Therefore, it is strongly recommended that the dif-
ference between electricity generation and consumption must be minimal. Moreover, the
marginal cost of electricity in a day-ahead market is extremely dynamic due to variable
Sustainability 2021, 13, 6066 6 of 17

and unexpected energy consumption patterns, whereas the electricity cost varies over the
given period (i.e., 60 min, 30 min, 15 min) of fixed intervals, and consumers receive retail
electricity prices reflecting average energy generation trends including transmission and
distribution losses. Therefore, the frequent disconnections between short term marginal
and long term marginal costs can cause serious concerns regarding real-time energy gen-
eration and consumption. This is because consumers do not have the information about
the marginal cost of supplied electricity. This results in an inefficient participation in DR
programs. Consequently, the consumers receive little or no incentive for participating in
DR programs. From the above-mentioned discussion, it can be concluded that a flat rate
tariff encourages the consumers to overuse electricity during low pricing hours. As a result,
electricity tariffs may have higher values due to excessive energy consumption during
particular hours. Therefore, utilities have to fulfil energy demand by turning on extra
generators leading to costly tariffs. In conclusion, inefficient utilization of DR programs and
calculation of electricity tariffs in a day-ahead market may affect a consumer’s objectives.
As a response, consumers may be discouraged to adopt DR programs, which can create
serious concerns regarding grid stability in the long term. So, it is desired to adopt some
real-time mechanisms that could be feasible for both utilities and consumers, without
disturbing/violating their objectives.

6. System Model
In this section, we describe the proposed system model used to calculate incentive
based electricity prices. Let i ∈ N denote the loads li with time deadline denoted by t ∈ T
such that t = 1, 2, 3, ...T and j ∈ M denotes index of users who are participating in load
scheduling program and getting incentives. The energy demand of each load i is denoted
by dli (t). Let φ(t) denoted the global pricing policy (i.e., RTP) obtained from the electricity
market via AMI. Let β be the binary decision variable and represents the ON/OFF status of
load. Each load has a predefined start τis and end time τie , which lies within scheduling time
interval T. Without losing generality, all customers have the equal opportunity to schedule
their loads within the given time frame. Consequently, the cost-sensitive customers’ k1 can
get some incentives by shifting some load from on-peak to off-peak hours. In contrast, the
customers k3 who are not willing to participate in DR programs may receive higher prices,
which are calculated based on energy price and demand during critical hours. The details
of k1 and k3 are given in the next section.

6.1. Previous Model

In traditional schemes being used to calculate energy consumption prices, where all
users receive global prices irrespective of individualized demands, this may result in re-
bound peaks, that is, due to demand shifting from critical hours to off-peak hours [1,37,38].
In consequence, the non-homogeneous cost may be charged to customers, which partic-
ipated in DSM programs. In addition, exposing end-users to the wholesale electricity
market (i.e., real-time and day-ahead prices) has to lead the users to shift their load to
a low pricing area, which eventually increases demand during this time span [38]. This
would eventually lead to higher peaks. It is also demonstrated in [37] that this may create
rebound peaks due to demand shifting, and hence, DSMs need to be studied in accordance
with homogeneous and non-homogeneous energy users with the objective of peak shaving
and fair price distribution among all types of consumers. Similarly, the work reported
in [39] provided the concept of user aware price policies, which is based on individualized
demand profiles obtained from smart grid communication network. Although the concept
is novel, which helps with alleviating non-homogeneous price penalties on potential users.
However, in reality, energy consumption has a dynamic trend which is based on customers’
daily life activities. Eventually, this mechanism [39] may create homogeneous cost profiles
for a given time. A general energy price is calculated using Equation (1).

∑∑
 
pi = ( β × `i (t)) × d`i (t) × φ(t) , ∀i ∈ T, t ∈ T, (1)
i∈ N t∈ T
Sustainability 2021, 13, 6066 7 of 17

where φ(t) is the real time electricity price obtained from a day-ahead market, β is a binary
decision variable which denotes, that is, ON/OFF states of connected loads `i (t) during
time t, and is expressed as;

1; I f load is ON
β= (2)
0; I f load is OFF.

As the utility pricing model is based on some specified time interval, which is consid-
ered 24 h equally divided on all time slots. Therefore, ts and te are used to denote start and
end time intervals of `i over the given price φ(t), respectively, whereas the φ is obtained
from the electricity retail market, which is changed due to load trends and consumer
demand over the given period [t ∈ T ], while τi denotes utility cycles (i.e., number of time
slots) of all loads subject to ( β`i (t)). The following sections discuss different cases related
to electricity price calculation methods.

6.2. Demand Aware Prices (Case-1)

To cater for the aforementioned uncertainty, the proposed work provides a mathemat-
ical mechanism to calculate electricity prices on the basis of energy consumption profiles
of all users/units which are obtained from smart grid communication network. For this
purpose, there need to be community networks to handle individual price profiles of all
users in accordance with the individualized energy consumption trends. The electricity
price ( pi0 ) is calculated by using the proposed mechanism, which depends on the load
consumption of each customer, and is expressed through Equation (3):

pi0 (t) = ∑∑ ( β × `i (t)) × d`i (t) × φ0 (t) , ∀i ∈ T, t ∈ T,

 
(3)
i∈ N t∈ T

where φ0 (t) denotes homogeneous price policies which further depends on k1 variable
denoting the actual electricity price each customer will be charged, giving the variation in
energy consumption of `i over give time t. The k1 can be calculated on the bases of `i (t)
and φ(t) and expressed in Equation (4):
n o
k1 ( t ) = ∑ ∑ ( β × `i (t)) × d`i (t) × φ(t) × (di )−1/2 , ∀i ∈ T, t ∈ T,


(4)
i∈ N t∈ T

pi0 (t) = ∑∑
 
( β × `i (t)) × d`i (t) × k1 (t) , ∀i ∈ T, t ∈ T. (5)
i∈ N t∈ T

Equation (5) denotes the electricity price ( pi0 ) in the proposed case and the cost mini-
mization objective function can be described through Equation (6):

min ∑ ∑ Φi ( t ) (6)
i∈ N t∈ T
!
s.t : ∀i ∈ N : Φi = ∑∑ pi0 (t). (7)
i∈ N t∈ T

6.3. An Incentive Based Price Overview (Case-2)

In this case, we first identify the total users consuming high power, contributing
towards a high electricity tariff. Eventually, the other users who have a balanced power
consumption profile may be affected in terms of bearing high prices. This section aims
to devise a mechanism to fairly design customized price profiles for all users. For this
purpose, the pricing tariff for the customers consuming high power needs to be calculated,
which would be used in calculating incentives for the customers showing balanced power
consumption trends. After calculating incentives and penalties for respective customers,
we will then compare the cost values of both traditional and proposed mechanisms for
Sustainability 2021, 13, 6066 8 of 17

validation purpose. Using Equation (8), we can identify the consumers who have drawn
more power leading to adding more to the electricity price being provided.

pi0 (t) − pi (t) = 0, ∀i ∈ T, t ∈ T. (8)

Now, we can design the customized electricity tariff for high consumption users.
Meanwhile, we also calculate the incentives to those customers who willingly maintain
stable load profile to seek incentives from utility.

6.4. An Incentive Based Price Calculation

This section discusses the incentive-based price policies designed for those customers
who participated in the energy management process j ∈ M to reduce peak load demand.
In response, the participating customers have been given incentives in the form of a bill
reduction. In contrast, the customers who do not want to compromise on their comfort
level and have not yet participated in energy management programs are charged prices
in accordance with load demand and non-discriminatory penalties. These penalties have
been calculated to preserve utility revenue. Initially, we have to calculate the electricity
cost of two types of customers: (i) the customers with surplus electricity cost being charged
after participation in the energy management (EM) process; and (ii) the customers with
reduced electricity costs after participation in the EM process. For this purpose, we first
calculate the reduced cost as expected by the M customers, which can be calculated through
Equation (9):
nh i o
pi0 (t) = ∑ ∑ ∑ ( β × `i,j (t)) × d`i,j (t) × k2 (t) , ∀i ∈, j ∈ J, T, t ∈ T (9)
j∈ M i∈ N t∈ T
nh i o
∑ ∑∑ ( β × `i,j (t)) × d`i,j (t) φ0 (t) × (di,j )−1/2 , ∀i ∈ T, t ∈ T,


k2 (t) = (10)
i∈ N j∈ M t∈ T

where Equation (10) denotes the fraction by which the customers j consumes more energy,
and φ0 (t) is the price, which is expected by customers j in order to reduce their electricity
cost. The actual electricity price pi00 (t) which is obtained after load scheduling is expressed
through Equation (11):
nh i o
pi00 (t) = ∑ ∑ ∑ ( β × `i,j (t)) × d`i,j (t) × φ00 (t) , ∀i ∈ T, j ∈ M, t ∈ T, (11)
i∈ N j∈ M t∈ T

where φ00 (t) depicts the electricity price being charged to j customers. Now, we can
calculate the surplus electricity price being charged to j customers, based on which the
comfort cost is calculated for i consumers. Once this cost is calculated, the extra cost
charged to j customers would be adjusted in order to provide incentives in the form of
electricity bill reduction. The total amount of electricity cost for i can be calculated through
Equation (12):
nh i o
p j (t) = ∑ ∑ ∑ ( β × ` i,j ( t )) × d `i,j ( t ) × (k 1 ( t ) + α ) × ( d i,j ) −1/2
, ∀i ∈ N, j ∈ M, t ∈ T, (12)
i∈ N j∈ M t∈ T

where pi denotes the actual price charged to M customers and α = k2 − k3 is the ap-
proximate cost difference between scheduled and unscheduled cases. k3 can be through
Equation (13):
nh i o
k3 ( t ) = ∑ ∑∑ ( β × ` i,j ( t )) × d `i,j ( t ) × φ 0
( t ) × ( d i,j ) −1/2
, ∀i ∈ N, j ∈ M, t ∈ T. (13)
i∈ N j∈ M t∈ T

Now, the total energy consumption cost Φ̂i (t) over time t is calculated by using
Equation (14);
Sustainability 2021, 13, 6066 9 of 17

( " # )
nh i o
Φˆi,j (t) = pi ∑ ∑ (t) + ∑ ∑ ∑ ( β × `i,j (t)) × d`i,j (t) × k3 (t) × (di,j ) −1/2
× ∑ ∑ ∑ di,j (t) ,
(14)
i∈ N t∈ T i∈ N j∈ M t∈ T i∈ N j∈ M t∈ T
∀i ∈ N, j ∈ M, t ∈ T.

Now, we can calculate incentives for M customers who took part in the energy
management program. Let E pi denote the monetary incentives given to those customers
who have participated in the energy management process to flatten the peak demand
during critical hours. From the above Equations (1)–(12), we can calculate E pi as given
below;
h n   oi
E pi = ∑ ∑ ∑ Φˆi,j (t) − k3 (t) × ( β × `i,j (t)) × d`i,j (t) × φ0 (t) , ∀i ∈ N, j ∈ M, t ∈ T. (15)
i∈ N j∈ M t∈ T

Now, the final objective function Equation (16) which is the incentive maximization
and subject to the constraints of Equations (17)–(20) is written as:
 
min ∑ ∑ ∑ E pi,j (t) (16)
i∈ N j∈ M t∈ T

E pi ≤ (d`i × φ) : ∀i ∈ N. (17)
Equation (16) refers to the cost minimization objective function and Equation (17) de-
notes that the total cost obtained from the proposed mechanism should always be less than
the traditional mechanism. Otherwise, the proposed mechanism is not an optimal one.

Φ̂i = ur : ∀i ∈ N (18)

p`un = pdsch : ∀i ∈ N. (19)

i,j i,j

Equation (18) shows the total cost of load consumed, which should be equal to
the cost/utility revenue. Otherwise, the mismatch could ultimately affect the objectives.
Equation (19) denotes that the unscheduled and scheduled load before and after the
scheduling process must be equal. Otherwise, the proposed mechanism could be based on
energy conservation/reduction instead of load scheduling or management.

pdi,j < pdi,j < pdi,j : ∀i ∈ N (20)

`i ≤ β×`uti (t) : ∀i ∈ N, t ∈ T. (21)

Equation (20) shows the upper and lower limits on the load demand and Equation (21)
shows that the load demand must not exceed the utility capacity.

7. Proposed Algorithm
In the proposed work, we used GA to solve the incentive-based load scheduling
problem. Although, the consideration of heuristic algorithms is gaining popularity due to
their ability to obtain the best optimal results even when other mathematical algorithms fail
due to the diverse nature of control parameters and inherent complexity while designing
or formulating the underlying problem, mathematically. That is why we have considered
and used GA due to its ability to obtain global optimal results in all situations with a
high convergence rate. Moreover, the crossover and mutation operators further allow
obtaining the best results even if some random parameters affect the performance of the
results. Generally, convergence is one of the important parameters when dealing with
successive series of experiments in iterative methods [36,40]. Generally, the GA works by
considering some initial parameters with random initial population, fitness function, and
values of other control parameters. Initially, the objective/cost function is evaluated as per
Sustainability 2021, 13, 6066 10 of 17

given control values such as cost, incentives and delay in the proposed work. Once the
fitness is calculated and the best results are obtained, the algorithm stops by following some
predefined criteria or based on an initial number of iterations. Then, the best optimal results
are saved and crossover and mutation operators are applied to evaluate the fitness function
based on a new population. The probabilities of crossover Pc and Pm are set in such a way
to obtained global optimal results. However, to avoid premature convergence, we have
compared the best convergence results with the newly obtained results in each iteration and
used a Sigma scaling factor so that premature results should be discarded. We have also
tested the convergence against different control values to assess the performance under the
proposed model. It is also worth mentioning here that the performance of any optimization
algorithm also depends on the well behaved functional form of a developed mathematical
model. Otherwise, the optimal results may take more time or face complexities in achieving
them. Table 1 provides the loads with demand and working hours, while the Table 2 gives
the values of control variables used to find the optimal scheduling patterns and incentives.
Max. generation is selected as 800 so as to have the sufficient space for optimal results.
The population size is chosen as 400 in order to avoid the solution being premature.
The Pc and Pm values are selected and set after monitoring the convergence results. We
observed through experiments that these values are the most suitable for fast convergence.
The Algorithm 1 explains the working steps involved in getting incentives based price
profiles. In step-4, the initial random population is generated which is evaluated in step-5
using Equation (7). Step-6 is involved in calculating the power using RTP and proposed
mechanisms. Equations (9), (11), (12), (14) and (15) are involved for the calculation. Steps
1–8 show that the algorithm moves to the next step if an optimal solution is obtained.
Otherwise, the control will move to step-1 for new calculation and evaluation. Steps 13–14
compare the optimal solutions obtained from Equation (16) and Equation (6). After saving
the results, the crossover and mutation operators are applied and the control moved to the
step-1. The same process repeats over a 24 h time period.

Table 1. Load consumption and duty cycle requirements.

li Working Hours dli (kW)

l1 20 2.5
l2 24 3
l3 5 2
l4 7 2.5
l5 8 3.5
l6 8 3

Table 2. Control parameters of GA [36,40].

Parameters Values
Number of loads 6
Number of users 3
Max. generation 800
Population size 400
Probability of crossover 0.9
Probability of mutation 0.003
Sustainability 2021, 13, 6066 11 of 17

Algorithm 1 Steps involved in calculating incentives using GA.

Require: li , dli , φ, popsize, Pc , Pm ,
1: for t = 1 to T do
2: for i = 1 to N do
3: for j = 1 to M do
4: generate initial population
5: evaluate Equation (7)
6: calculate p0 (t), p00 (t), p j , Φˆi,j , E pi,j using Equations (9), (11), (12), (14) and (15)
7: evaluate Equation (16)
8: if best == min. then
9: save result
10: else
11: move to step-1
12: end if
13: if min.Equation (16) ≤ min.Equation (6) then
14: save the results
15: else
16: go to step-4
17: end if
18: do selection process
19: do Pc
20: do Pm
21: move to step-1
22: end for
23: end for
24: end for

8. Results and Discussion

Figure 1 shows the electricity price signal used in the proposed work. Unlike other
pricing signals being widely used in the literature and real-time works such as RTP, TOU,
DAP, CPP, the proposed price signal is dynamic with changing values at every instant
of time. This price signal is considered to deeply analyze the realistic cost and incentive
profiles of all the consumers instead of developing the load scheduling techniques of
algorithms based on DAP, which is known in advance to the users and energy management
controllers. Furthermore, these price signals elucidate the realistic changing behaviours
of price with respect to load. Figure 2 gives the convergence profile of GA based on the
control and load scheduling parameters. It is clear from the figure that GA converges
within 400 iterations and results with the best optimal cost in each iteration are obtained.
Figure 3 give and comparison of the price profiles between the RTP signal and the proposed
pricing signals being calculated using proposed incentive based model. It can be seen from
this figure that the proposed price profiles differ from RTP, showing that the proposed
mechanism calculates the price signal based on load demand, scheduling capacity and
incentives, respectively. Figure 1 shows a comparison of different patterns of price profiles
using RTP and proposed price (PP). From first sight, it is very clearly visible that the price
profiles using PP has variations when compared with RTP obtained from a day-ahead
market. These variations are due to various incentives provided to different consumers
based on load shifting and taking part in the load scheduling mechanism. For example, if
any user is willingly participating in load scheduling and maintain a consumption level
under the upper threshold limit as compared to the other consumers, he gets incentives in
electricity tariffs of that particular hour, instead of for the whole day. Similarly, if any user is
consuming relatively more power and exceeding the upper threshold limit, then s/he has to
be charged the extra price due to creating trouble for the electricity retailer of the producer.
Sustainability 2021, 13, 6066 12 of 17

This is because the electricity producer or distributor has to maintain a balance between
generation and demand. Figure 4 provides the energy consumption profiles of all the units
using RTP. t can be seen that scheduled load profiles show remarkable trends reflecting
the scheduling capability of the proposed mechanism based on GA algorithm, which is in
terms of load scheduling and peak management as well. Similarly, Figure 5 shows the cost
profiles of all the units using RTP. These variations provide an overview of the scheduling
mechanism designed to lower the overall cost and providing incentives to the users. It is
also seen from the profiles that scheduled cost is lower than unscheduled cost. Here, the
maximum peak is around 350$ and the minimum peak is around 20$. In contrast, Figure 6
provides the cost profiles of all the units using PP. Here, we can see that the maximum peak
is around 370$ and the minimum peak is around 10$. It reflects that those customers who
are willingly participating in the proposed scheduling mechanism are getting the incentives
in terms of reduced cost. On the other hand, the other customers who are not interested
in participating in load management programs are getting a comparatively higher price
and cost.

30
RTP Price Signal 1
RTP Price Signal 2
25 RTP Price Signal 2
Price ($)

20

15

10

5
0 5 10 15 20 25
Time (hours)
Figure 1. Real time electricity price signals over time t.

70

60
Total Cost ($/kWh)

Max.Fitness Pc=1, Pm 0.003

50 Max.Fitness Pc=0.9, Pm 0.003
Max.Fitness Pc=0.8, Pm 0.003
Max.Fitness Pc=0.7, Pm 0.003
40 Max.Fitness Pc=0.5, Pm 0.001

30

20
0 200 400 600 800
Total No. of Iterations
Figure 2. A comparison between total cost and fitness value over different values of control parameters.
Sustainability 2021, 13, 6066 13 of 17

40
RTP

RTP Electricity Price ($)

PP (Unit-1)
PP (Unit-2)
30
PP (Unit-3)

20

10

0
0 5 10 15 20 25
Time (Hours)
Figure 3. A comparison between real time electricity price and the proposed method for different
units over time t.

Unsch
Energy Consumption (KWh)

15
Sch (Unit-1)
Sch (Unit-2)
Sch (Unit-3)
10

0
0 5 10 15 20 25
Time (Hours)
Figure 4. A comparison of energy consumption using real time electricity and proposed price signals
for different units over time t.

Electricity Cost Using RTP

400
Energy Consumption Cost ($)

Unsch
Sch (Unit-1)
300 Sch (Unit-2)
Sch (Unit-3)

200

100

0
0 5 10 15 20 25
Time (Hours)
Figure 5. Electricity cost incurred for different units over time t using real time price signal.
Sustainability 2021, 13, 6066 14 of 17

Electricity Cost Using PP

400

Energy Consumption Cost ($)

Unsch
Sch (Unit-1)
300 Sch (Unit-2)
Sch (Unit-3)

200

100

0
0 5 10 15 20 25
Time (Hours)
Figure 6. Electricity cost incurred for different units over time t using proposed method.

9. Conclusions
Price based DR programs through AMI are designed to encourage users to participate
in load scheduling processes to balance generation and demand capacity without consid-
ering costlier generation. However, these programs faced difficulties in attracting a large
number of customers to participate. This is due to the inherent limitations caused by its
discriminatory nature if applied in different geographical regions being operated under
the same distributed system operator. To handle this limitation, this work has proposed an
incentive-based load scheduling mechanism using a real-time pricing policy to facilitate
energy retailers’ and end-users’ particularity. The incentives, in terms of dynamic pricing
profiles using load consumption trends, are calculated. However, as these incentives are
calculated based on the dynamic price profiles of different customers, we first obtained
these profiles based on load consumption trends. In response, each customer received a
different price signal, which is dynamically changed with load consumption reflecting
incentives or an overpriced tariff. To analyze the impact of the proposed mechanism,
we provided a system model to calculate these prices and incentives and formulate an
objective function. Then, a well behaved functional form of optimization function is solved
by using a heuristic based GA and obtained the energy and load consumption profiles.
The results are then compared with the unscheduled profiles without incentives. It is clear
from the results that participating customers are able to get dynamic pricing signal based
incentives without affecting the electricity bills of other customers. In the future, we intend
to extend and implement this model in designing electricity prices in peer-to-peer energy
transactions using blockchain technology.

Author Contributions: T.A., M.B.R. and M. Awais did the mathematical modelling and implementa-
tion. T.A., A.H.M. check and verify the results. T.A., A.H.M. and M.B.R. supervise the project. All
authors have read and agreed to the published version of the manuscript.
Funding: This project was funded by Deanship of Scientific Research (DSR) at King Abdulaziz Uni-
versity, Jeddah, under grant number (RG-13-135-41). The authors therefore acknowledge with
thanks DSR for their technical and financial support. This project has also received funding
from the European Union Horizon 2020 research and innovation programme under the Marie
Sklodowska-Curie grant agreement No 754382, GOT ENERGY TALENT. The content of this [re-
port/study/article/publication] does not reflect the official opinion of the European Union. Respon-
sibility for the information and views expressed herein lies entirely with the author(s).
Institutional Review Board Statement: Not applicable.
Informed Consent Statement: Not applicable.
Sustainability 2021, 13, 6066 15 of 17

Data Availability Statement: No new data were created or analysed in this study. Data sharing is
not applicable to this article.
Acknowledgments: The authors thank the referees for careful reading and useful comments that
helped to improve the paper.
Conflicts of Interest: The authors declare no conflict of interest.

Nomenclature
t index of time
i index of loads
j index of customers
ar number of arrival requests
d li load demand of ith load
li load index for ith load
pi energy consumption price of ith load
β binary decision variable
pi actual price charged to M customers
Φˆi,j total energy consumption cost
ur utility revenue
pdsch scheduled load of jth customer
i,j
pdi,j min. limit on load demand of jth customer
φ(t) electricity price over time t
τi utility cycle of ith load
p‘ electricity price using proposed method
κ1 actual electricity price phase-1
Φi total electricity cost of ith load
κ2 actual electricity price phase-2
p00 actual electricity price after incentives
φ1 electricity price after scheduling
α approximate cost difference
E pi incentives for customer
p`i,jun unscheduled load jth customer
pdi,j max. limit on load demand of jth customer
luti utility load

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