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Optimal pricing for electricity retailers based on data-driven consumers’ price-response

Author

Listed:
  • Román Pérez-Santalla

    (University Carlos III de Madrid)

  • Miguel Carrión

    (University of Castilla-La Mancha)

  • Carlos Ruiz

    (University Carlos III de Madrid)

Abstract

In the present work, we tackle the problem of finding the optimal price tariff to be set by a risk-averse electric retailer participating in the pool and whose customers are price sensitive. We assume that the retailer has access to a sufficiently large smart-meter dataset from which it can statistically characterize the relationship between the tariff price and the demand load of its clients. Three different models are analyzed to predict the aggregated load as a function of the electricity prices and other parameters, as humidity or temperature. More specifically, we train linear regression (predictive) models to forecast the resulting demand load as a function of the retail price. Then, we will insert this model in a quadratic optimization problem which evaluates the optimal price to be offered. This optimization problem accounts for different sources of uncertainty including consumer’s response, pool prices and renewable source availability, and relies on a stochastic and risk-averse formulation. In particular, one important contribution of this work is to base the scenario generation and reduction procedure on the statistical properties of the resulting predictive model. This allows us to properly quantify (data-driven) not only the expected value but the level of uncertainty associated with the main problem parameters. Moreover, we consider both standard forward-based contracts and the recently introduced power purchase agreement contracts as risk-hedging tools for the retailer. The results are promising as profits are found for the retailer with highly competitive prices and some possible improvements are shown if richer datasets could be available in the future. A realistic case study and multiple sensitivity analyses have been performed to characterize the risk-aversion behavior of the retailer considering price-sensitive consumers. It has been assumed that the energy procurement of the retailer can be satisfied from the pool and different types of contracts. The obtained results reveal that the risk-aversion degree of the retailer strongly influences contracting decisions, whereas the price sensitiveness of consumers has a higher impact on the selling price offered.

Suggested Citation

  • Román Pérez-Santalla & Miguel Carrión & Carlos Ruiz, 2022. "Optimal pricing for electricity retailers based on data-driven consumers’ price-response," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 30(3), pages 430-464, October.
    • Handle: RePEc:spr:topjnl:v:30:y:2022:i:3:d:10.1007_s11750-022-00622-8
    DOI: 10.1007/s11750-022-00622-8
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    References listed on IDEAS

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    1. Deng, Tingting & Yan, Wenzhou & Nojavan, Sayyad & Jermsittiparsert, Kittisak, 2020. "Risk evaluation and retail electricity pricing using downside risk constraints method," Energy, Elsevier, vol. 192(C).
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    3. Antonio J. Conejo & Miguel Carrión & Juan M. Morales, 2010. "Decision Making Under Uncertainty in Electricity Markets," International Series in Operations Research and Management Science, Springer, number 978-1-4419-7421-1, April.
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