A Game Model of Time-of-Use Electricity Pricing
and Its Simulation
Zeng Shaolun
Department of Management Science
Sichuan University of Science & Engineering
Zigong, China
slumzen@yahoo.com
AbstractAs a fulcrum in the power market, electricity price
affects the reliability and security of the power system indirectly.
The time-of-use (TOU) pricing is one of the important ways to
safeguard the stability of the power system. The TOU pricing
must consider the stakeholders of the government, the power
company, and the consumer. With the prerequisite of price-fixing
level by the government, the power company is allowed to adjust
the power price to realize the goal of power load control. Based
on this, a TOU pricing model price-fixing by the government,
pricing by the power company, and electricity-consumption by
the consumer is established with game theory. The model
simulation is carried out with the Matlab Software, the result of
which indicates that the model is practicable for the power load
control.
Keywords-TOU pricing; electricity market; game model;
simulation
I. INTRODUCTION
Electricity price is one of the most important elements of
the power market. Many failed cases of marketization of
electric power in western countries are due to the impact of
electricity price on the reliability and security of the power
system. How to calculate the reasonable price and how to fairly
allocate the transmission costs to the consumer are hot research
topics.
The theoretical research on the TOU pricing of electricity
market was firstly carried out in the generation side [1]. In
1981, M. Munasinghe proposed that the overall price level be
determined by the long-term marginal cost. With a simplified
peak-load model sharing between the peak and the valley (off-
peak), a simple model of TOU pricing was established from the
point of production cost [2]. From 1983 to 1987, Oyama
measured the marginal cost of electricity with the method of
mathematical programming. Given the time periods of the
natural peak, peak, waist and the base, the solution of the dual
linear programming was obtained. This was a further progress
of the TOU pricing model of the power generation side [3].
The study of TOU pricing from the generation side to the
demand side arose as the spot price was put forward. Luh, Ho,
et al. put forward an idea of consumer response to describe
the impact of the power-load on the TOU pricing, and a DSM-
based model was set up. This was a research on the TOU
pricing in the demand side for the first time [4]. Then M. A.
This research is supported by the National Natural Science Foundation of
China (Grant No. 70071036, 90510016).
1-4244-1312-5/07/$25.00 2007 IEEE
Zeng Shaolun, Ren Yulong, Li Jun
College of Economics and Business Administration
Chongqing University
Chongqing, China
renyulong@cqu.edu.cn
Crew and other researchers advanced to made use of economic
incentives to induce customers electricity-consumption, i.e. to
increase the electricity-consumption during the valley period
and reduce it during the peak period. Thereby the difference
between the peak and the valley could be decreased to relieve
the serious problem of the peak capacity [5]. After researching
on the relationship between the supply elasticity and the
demand elasticity and analyzing the operation characteristic of
the Nordic electricity market, Doorman and Wangensteen
demonstrated the feasibility of adjusting the demand elasticity
by imposing additional charges during the peak periods [6].
David, Rsnen, et al. thought that the consumer response
could be reflected in the adjustment of consumption periods.
They constructed a DSM TOU pricing model on the basis of
investigating the consumer response curve [7,8]. In order to
quantify the consumer response to the TOU pricing, Sheen and
his colleagues quoted price elasticity matrix to express
consumers demand elasticity [9].
In China, along with the deepening of the reform of the
power industry, the research on the theory of power price in the
demand side has been springing up. Tang Yudong, Wang
Mingfei, et al. considered that prerequisite of calculating the
price in the demand side was that there was a determinate
power load curve. And they set up a TOU pricing model based
on the goal of DSM [10]. Subsequently, supplementary to
Tangs model was achieved by a series of studies. For instance,
Wu Junji, Ding Ning, et al. optimized the division method of
peak-valley period with semi-gradient fuzzy membership
function. They studied the possibility of the point on the curve
the probability at the peak and at the valley [11]. Wu Qiuwei,
Wang Lei, et al. probed into the electricity pricing of flat-load
periods and put forward a method to determine the price of
flat-load periods by using the market clearing price (MCP) to
calculate the average purchase electricity price, which was a
feasible approach to marketize the TOU pricing. In this way,
the TOU pricing system suited to the electricity market could
be constructed [12]. In Liu Changs research, he combined the
electricity price of the demand side with the price of the
generation side to marketize the TOU pricing and got a model.
Through optimizing the objective function of the model, the
optimal periods division of peak-valley and corresponding
electricity pricing were carried out [13, 14]. Liu Guanqi, Zhang
Jian, et al. surveyed the consumer response to the TOU pricing
and established a TOU pricing model based on the consumer
5050
response curve. Meanwhile, he pointed out that the TOU n n

pricing should consider factors beyond economic laws for the st. p (q j j ) q j C j (q j ) 0
j =1 j =1
current shortage of electricity [15]. Ding Wei, Yuan Jiahai, et
al. proposed to establish the consumer response matrix to From this model, we can get an
reflect the customer response to the TOU rates, and established p j MC j
j = 1 + , where j = j j is the
q p
a model of consumer satisfaction. After considering the equation
consumer satisfaction of consumption mode and electricity pj p j q j

charges, they improved the TOU pricing model based on 1+
consumer response to price and consumer satisfaction [16]. Liu price elasticity in the jth period. Given R = as Ramsey
Yan, Zhao Juan, et al. analyzed the problems of present TOU
rates in China and thought that the present TOU pricing should index, the above equation can be transformed
be improved in the aspects of other issues of the division of MC j
to p j = ; here pj is the price-fixing level of the
TOU pricing periods, the determination of the ratio of the TOU 1 R / j
rates, and the incentive mechanism of risk-benefit [17, 18]. government in the jth period.
In short, the research on the TOU pricing focused on the Under the prerequisite of this paper, the government only
relationship between the generation side and the demand side needs to develop a unified price level and give a certain right to
to set up TOU pricing model or to make up the model through the power company to establish a pricing structure, so that the
investigating customer response to the pricing, price elasticity power company can control the power load. Therefore, to
of the demand side, and customer satisfaction. The weighted-average the power price with the weight of electric
optimization of these models mainly stressed on the rational
division of peak-valley periods, determination of price, quantity, the governments unified price of p is available:
customer response to the pricing. Most of these models
concerned about the impact of the price on the power-load; 1 n 1 n q j MC j
p= qj pj =
little attention was paid to the game between the customer and nQ j =1 n
1 R / j
the power company. And as the supervisor, the governments n q j j =1

j =1
impact of the regulation on the electricity price, especially the
impact of the TOU pricing on the social welfare was less taken C. A model of customer response
into account. The customer may select the optimal quantity of electricity
under given TOU rates to maximize his profit. For customer i:
II. GAME MODEL OF TOU PRICING
n n
A. Hypothesis max i = rij qij pij qij (Model II)
qi 1"qin
(1) customers: m; periods: n. j =1 j =1

(2) electricity price in each periods: p=(p1,p2,,pn); n

electricity-consumption: q=(q1, q2,, qn); joint cost function st. p j = a j + b j qij , j=1,2,,n, i=1,2,..,m
n i =1
for the power company: C (q1 , q 2 ,..., q n ) = K o + C i q i ;
i =1 Thus the electricity-consumption of customer i in the jth
bidding price of the power company: pj=aj+bjqj, in which aj,bj m

are the constant. (m + 1)rij rij a j

period is qij = i =1
; the total consumption of
(3) the utility of customer i in each period: rij; electricity (m + 1)b j
consumption: qij. m

r ij
ma j
(4) with symmetric information.
electricity in the j period is q j =
th i =1
.
(m + 1)b j
B. Price-fixing model of the government
Of n periods, different customers demand elasticity for the D. Bidding model of the power company
electric power is not the same. According to Ramsey-Boiteux
pricing model, suppose the inverse function of the power The goal of modeling the bidding is to realize the power-
company for the market or the customer in the jth period is load control in the case of meeting with the restriction of
pj=pj(qj), and the consumer surplus in the jth period is customer participation. Therefore, for any power-load level A,
qi aj(A), bj(A) should be selected to satisfy the following equation:
S j = p j (q j )dq j p j (q j ) q j . Thus, the problem faced by
0

the government is to maximize the consumer surplus in the m

case of guaranteeing the profit of the power company: q j = qij = A (Model III)
i =1

n
Max = S j (Model I) st. rij p j , j=1,2,,n
j =1

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 To solve the above equation, we can on the power-load curve must be not in the peak periods, but in
m the valley periods definitely. Similarly, the probability of the
r ij (m + 1) Ab j valley point in the valley periods is 100%; the probability of
get a j ( A) = i =1
. And bj(A)=hj is a constant the valley point in the peak periods is zero. In this way, all the
m rest points on the curve can be described by evaluating their
m

r mrij probabilities in the peak or valley periods. For example, if the

ij

restricted by h j max . Accordingly, under power-i =1 probability of a point is 90% in peak periods, its possibility in
A j the valley periods is of very little possibly this point is in the
load level A, the bidding strategies of the power company peak periods; if the probability of another point is 90% in the
m valley periods, its possibility in the peak periods is of very little
r ij (m + 1) Ah j either possibly this point is in the valley periods; if the
is p j = i =1
+ h j q j ; the equilibrium price probability of a certain point is 50% in the peak periods, its
m possibility in the valley periods is likely to be 50% possibly
m

Ah j this point is in the flat periods.

r ij

is p j ( A) = i =1
; the electricity-consumption of We selected the smaller semi-trapezoidal membership
m function as shown in Figure 1(a) and bigger membership
1 1 m A function as shown in Fig. 1(b) to evaluate the points on the
customer i is qij ( A) = rij m rij + .
hj i =1 m curve the probabilities in the peak periods and the valley
periods (only consider the oblique line, i.e. the interval [a, b] on
the x-axis).
E. A model of the optimal power supply of the power
company
For the power company, he must firstly determine the U(x)
bidding strategies at the power-load level A, i.e. to fix the value
of aj(A), bj(A), j=1,2,,n. Based on this, the optimal power
supply level can be established. The determination of the
optimal power supply level is a process of maximizing its
1
profit under the restriction of the governments price-fixing: bx
U ( x) =
ba
n n
max = p j A C j A K 0 Model IV
A
j =1 j =1

(a)
1 n
s.t. pj A p
nA j =1
0 a b x
To solve this linear programming, we can get the optimized U(x)
m n n

r ij m C j
m
level A* =
j =1 i =1
n
j =1
( p) , where ( p) is the
2
2 h j 1
j =1

shadow-price of the price-fixing level. In order to simplify the

mathematical deduction caused by the slack condition, we xa
U ( x) =
suppose that the restriction of price-fixing is a tight constraint, ba
m n

r ij
mn p
i =1 j =1
namely A* = n
.
hj j =1 (b) 0 a b x

Figure 1. The semi-trapezoidal distribution

III. SIMULATION OF THE GAME MODEL OF TOU PRICING
A. Division of time periods for the peak-valley
According to the actual situation, the peak point on the
power-load curve must be not in the valley periods, but in the
peak periods undoubtedly. Thats to say, the probability of the
peak point in the peak periods is 100%; the probability of the
peak point in the valley periods is zero. While the valley point
In Fig. 1, point a and point b are the valley point and peak
point respectively on the power-load curve. Obviously, the
probability of the valley point a in the valley periods is 100%,
while the probability in the peak periods is zero; the probability
of the peak point b in the peak periods is 100%, while the
probability in the valley periods is zero. In this way, we can
calculate the probability of other points in the peak periods

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and the off-peak periods. In terms of the above division of time
periods for the peak-valley, we can divide a day into 24 150

periods.

Power load(10,000kw)
120
B. Model simulating
1) Method 90

The goal of this research is to price accurately and

determine the power supply level from the standpoint of the 60
power company. The Matlab Software is adopted in the
simulation. Firstly, the power supply level A is determined 30
according to the historical data. Secondly, the bidding 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
strategies are to be adjusted for different time periods, i.e. to Time periods
adjust a j ( A) and b j ( A) to calculate the TOU rates. Thirdly,
the TOU rates will be compared with governments price-
fixing level to determine power companys bidding strategies Figure 2. Original power load curve
to achieve a bidding function or model when the profit of the
power company is maximized at the previous power supply After simulated with the Matlab Software, the result is
level. Fourthly, to adjust the supply level A and repeat the listed in Table 2.
above steps, the optimal supply level A* and the TOU pricing
function p j ( A ) will be attained when the power company TABLE II. THE RESULT OF THE SIMULATION
maximizes its profit. Peak Valley Flat
2) Result and discussion Former price 4,630 4,630 4,630
(yuan/10,000 kw.h)
Given a unitary electricity price p=4,630 yuan/10,000kw.h,
the governments price-fixing level p=4880 yuan/10,000 kw.h, Electricity consumption 125.67 53.45 88.4
(10,000 kw/h)
the original power-load data (curve) can be seen in Table 1 and
Figure.2. TOU rates 9,257.7 1,140.7 4,239.6
(yuan/10,000 kw.h)
According to the division method of the peak and the valley Power supply (kw) 98 98 98
periods mentioned above, the power-load curve can be divided Power companys bidding strategy
into: peak periods (10:00-24:00), valley periods (01:00-08:00), aj 9,238.1 974.1 3,298.8
and flat periods (08:00-10:00). bj 0.2 1.7 9.6
Suppose there are only two electricity customer (A and B); Former profit (yuan) 5,572,099.8
the profit of the two customers in the three periods Present profit (yuan) 8,886,753.2
9450 1280 4730 From Table 1, the bidding strategies of the power company
is rij = ; the fixed-cost of the power are p = 9238.1 + 0.2 q in the peak periods, p = 974.1 + 1.7q in
9085 1168 4690
supply is KD=3,000,000 yuan/10,000kw.h; the variable cost is the valley periods, and p = 3298.8 + 9.6q in the flat periods.
1,000 yuan/10,000kw.h; the maximal supply capability is With the optimal power-load level of A*=980,000kw, we can
980,000 kw. figure out the price: 0,926 yuan/kw.h in the peak periods, 0.114
yuan/kw.h in the valley periods, and 0.424 yuan/kw.h in the
flat periods.
TABLE I. THE ORIGINAL POWER LOAD DATA

Time power Time periods power IV. SUMMARY

periods load(104kw) load(104kw)
1 65.4235 13 138.4665
In this paper, a TOU pricing model price-fixing by the
2 55.5406 14 127.8449 government, pricing by the power company, and electricity-
3 48.8096 15 120.6944 consumption by the consumer is established with game
4 45.4539 16 108.8268 theory under the prerequisite of the regulation or supervision of
5 43.6773 17 121.8462 the government. The governments price-fixing level is
6 46.6026 18 129.5948 determined with the Ramsey-Boiteux pricing model. The
objective function is set up from the point of the power
7 53.7557 19 137.0564
company and the customer. Based on this, we get the power
8 68.3565 20 130.314 companys bidding strategies in different time periods and gain
9 82.545 21 137.1617 the electricity-consumption for different prices. The simulation
10 110.8664 22 131.5806 of the model is carried out with Matlab software. The result of
11 120.9144 23 112.8387 the simulation indicates that the model has certain practical
12 131.3745 24 90.4575 value for the power load control.

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