Dynamic pricing of electricity in retail markets

This paper aims at defining a dynamic and flexible tariff structure for a distribution company that protects the retail consumers against the excessive fluctuations of the wholesales market prices. We propose a two-stage pricing scheme that sets in a first-stage a time-of-use tariff that is corrected later by a dynamic component once the real-time demand has been observed. A personalized tariff scheme may be offered by a distribution company to each dynamic customer by allowing him to choose the appropriate robustness level expressed in terms of variability between the first and the second-stage decisions. The arising limited recourse model has been tested on realistic test problems, by using a slight modification of a recently proposed interior point solution framework. © 2007 Springer-Verlag.