A Hybrid Pricing Mechanism for Joint System Optimization and Social Acceptance

In this paper, we propose a socially-accepted local electricity pricing mechanism for households that is dependent on the electric load of a neighbourhood and is able to flatten out the neighbourhood profile. The used cost function is a piecewise linear approximation of a quadratic function.
The motivation for using this mechanism is that, with the energy transition at hand, unwanted high peak loads in electricity consumption as well as in renewable generation are expected in the distribution grids. To deal with these problems, electricity profiles need to flattened.
Following literature, quadratic cost functions have proven their ability to achieve such a system optimization, however, their problem is that customers find these pricing mechanisms too complex and would not be willing to participate when offered these prices. On the other hand, pricing mechanisms currently used in practice are often simple, and therefore socially well-accepted. However, these mechanisms are hardly giving any incentive to influence occurring peaks in the electricity profiles.
We show that the proposed mechanism is, according to the reactions of customers in a field test, and according to requirements presented in literature, a socially accepted mechanism. Furthermore, a numerical evaluation shows that our proposed mechanism can flatten out peaks on a neighbourhood level, albeit that its convergence is slightly slower than by using the quadratic cost function. These two aspects imply that the presented pricing mechanism has the potential to be useful in practice.