IEEE TRANSACTIONS ON INDUSTRIAL INFORMATICS, VOL. 11, NO.

1, FEBRUARY 2015

281

Optimized Control of Price-Based Demand

Response With Electric Storage Space Heating
Olli Kilkki, Student Member, IEEE, Antti Alahaivala, and Ilkka Seilonen

AbstractThe increased uncertainty of the electric grid due to

the penetration of renewable energy sources and deregulation of
the electric market is aimed to be alleviated by demand response
(DR) in the future smart grid. The demand-side resources can be
incentivized to alter their consumption patterns by varying their
electricity price over time. A major residential energy demand
contribution is from electric heating, which, when combined with
smart energy storage using water heaters, could be utilized to
defer consumption to more inexpensive periods without affecting
the customers thermal quality of service. The objective is
to optimize the consumer electricity price of electric storage
space heating customers, in order to maximize the profit of
the retailer. This approach of varying the customer electricity
prices leads to a game-theoretic scenario, where the procurement
and consumption profiles of the retailer and consumer agents
are based on the set electricity price. The optimization of the
consumer electricity price is shown to offer lesser expense for
the retailer. In addition, hourly load-following can be improved
by offering further discounts for the consumers.
Index TermsAgents, demand response, electric storage space
heating, game theory, smart grid.

N OMENCLATURE
,
C
E
E
E , E
K
H
K
Ks
L
n
P
Pd
,
Q

Up- and downregulation price ratios.

Gaussian scenario covariance matrix.
Electricity bought by the retailer (kWh).
Electricity procurement and consumption imbalance (kWh).
Up and down imbalances (kWh).
Price discount (e).
Optimization (simulation) horizon (h).
Hourly consumer price vector (e/kWh).
Hourly spot price (e/kWh).
Customer inflexible load (kWh).
Percentage of consumers to give discount to.
Storage space heater charging power (kWh).
Charging power with discounted price (kWh).
Up and down prices (e/kWh).
Hourly heating demand (kWh).
Deviation in the Gaussian scenarios (e).
Current hour (h).
Exponential decay in Gaussian scenarios (h).

Manuscript received January 31, 2014; revised April 15, 2014 and May
30, 2014; accepted July 08, 2014. Date of publication July 23, 2014; date of
current version February 02, 2015. Paper no. TII-14-0140.
The authors are with the Aalto University School of Electrical Engineering,
00076 Aalto, Finland.
Color versions of one or more of the figures in this paper are available
online at http://ieeexplore.ieee.org.
Digital Object Identifier 10.1109/TII.2014.2342032

I. I NTRODUCTION

HE DEREGULATION of the electric network, in conjunction with the increased penetration of renewable
energy sources, is seen to increase volatility of generation
[1]. The rise in volatility of power generation and electricity
prices has highlighted the need for a smarter electricity grid,
where the grid reliability and efficiency can be sustained
[2]. One method for balancing the electricity production and
consumption is demand response (DR), which denotes the
demand-side load ability to curtail or defer consumption in
response to direct changes in price or incentive payments at a
later date [3].
Residential heating constitutes, especially in the winter, the
majority of consumer energy consumption in cold climates
(e.g., 80% of consumption in Finland [4]). In addition, the
heating load can be easily curtailed without affecting the consumer satisfaction [5]. In particular, electric heating systems
equipped with thermal energy storage units, such as storage
space heating, can be used to defer consumption due to their
elasticity and storage capabilities [6], [7].
Currently, many electricity consumers are charged a flat rate
for their consumption, but with real-time monitoring and more
advanced infrastructure, some consumption could readily be
deferred to less congested periods. Some time of use (ToU)
tariffs are in place to incentivize charging of storage space
heating units during night hours. However, the static tariff does
not reflect the hourly market price for electricity, and further
adjustment of the load profile is unattainable. With more
optimal price-based programs (PBP), such as real-time pricing
(RTP), more up-to-date refinement of the water heater charging
can be utilized [8]. Currently, in some locations, consumers
can opt to basing their electricity price on the daily market spot
price [9]. Thus, the consumers can optimize their electricity
usage to hours, which are beneficial for both parties. However,
further optimization of the price enables more optimal energy
procurement control for the retailer. In the future, the pricing
could be subsequently altered hourly to reflect changes in the
forecasts of consumption and available production.
The contribution of this paper consists of studying how
electric storage space heating loads can be optimally controlled using price signals from the retailer. The intent is
to maximize the retailers profit in the electricity market by
deferring the charging to more desirable hours. In addition,
day-ahead forecast errors in consumption are to be balanced
hourly by offering additional discounts for the consumers.
To validate the proposed pricing mechanisms, simulations on

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diverse populations of consumers are performed, as well as a

sensitivity analysis. Additionally, some architecture and information systems required for practical realization are assessed.
II. R ELATED R ESEARCH
DR is seen as an important part in balancing the future
electric grid. In order to balance the grid, the curtailing
and deferring of demand can be realized either by pricebased programs [8] or by direct control of the loads. Directly
controlling the load profile of customers can be achieved,
e.g., by directly scheduling the loads [10], such as heating
[11], electric vehicles [12], [13], and water heaters [14], [15].
However, these methods assign the responsibility of optimal
operating schedules to the controlling entity, e.g., the retailer.
Alternatively, with heating, the deadbands [11] or setpoints
[13] of the thermostats can be altered. However, all the
aforementioned methods compromise the optimal operation of
the customer appliances, if the controlling entity does not have
complete knowledge of their current and future behavior.
In contrast, price-based DR has been especially noted to
be an essential part of the prospective smart grid [16]. The
relevance of price-based control is justified by the notion that
the current consumer curtailment potential and baseline load
are best known by the individual consumers [16]. Particularly,
consumers with storage potential for heat or electricity can
optimize their consumption, as observed in [7], [17], and [18].
RTP can be used as the motivator for scheduling various
residential loads [19][21]. Especially, storage-type customers
have potential for load shifting, as evidenced in [7], [18], and
[22]. In [7], storage space heating customers have been shown
to be able to optimize their consumption, with respect to a
given daily spot price vector.
However, the potential of storage-type customers in shaping
the consumer load profile could be further exploited by issuing
an optimized price for the customer and updating it in real time
for additional balancing. Utility functions have been utilized
for optimizing the price formulation, e.g., in [23] and [24],
and for distributed iterative bidding [25], [26]. However, more
complex dynamic models for the consumer behavior would be
beneficial. Such dynamic models have also been suggested,
e.g., in [27], where a Stackelberg game-theoretic scenario is
used. The scenario denotes the situation where the retailer
maximizes its profit by determining the consumer electricity
price, whereas the consumer simultaneously aims to minimize
its electricity cost. The effect of consumer electricity price on
the consumption is modeled by the retailer and simultaneously
optimized with the energy bought from the electricity market.
However, in the considered case, the load is curtailed and
the consumer comfort is affected, and no additional intraday
balancing efforts are considered. Strictly shiftable loads could
be considered and intraday balancing is added to counteract
the forecasting errors.
III. P ROBLEM D ESCRIPTION
The attempt is to formulate a pricing mechanism for the
retailer, which ensures better efficiency of purchased and
consumed resources, and increased profits. For example, in the

Fig. 1. Stackelberg game scenario in the electricity market (adapted

from [30]).

Nordic region, the retailers have to forecast their consumption

for the following day and submit demand bids to the Elspot
daily market [28]. The spot price for the following 24 h is then
established based on the delivered bids, and the retailers buy
at the realized price. If smart home appliances are assumed,
the combined electricity consumption profile of the retailer
is, however, affected by the price of electricity issued to the
consumers. The situation follows the Stackelberg game [29]
scenario, where retailers (leaders) determine the consumers
(followers) actions, when the consumers behave in an optimal
fashion and the retailer can anticipate their reaction. In other
words, the retailers set the electricity price of the consumers,
which shapes their consumption, which in turn has to be taken
into account by the retailers when acquiring the daily energy
from the spot market.
Fig. 1 displays the game scenario of the actors in the
electricity market. The Elspot market supplies the daily spot
price after the retailers submit their bids, and then the retailers
decide the price to be charged from the consumers. The
scenario with a single retailer is only observed, as the time
scale is considered to be too short for any retailer switching
to occur. Additionally, the effects of such load profile shaping
on the spot price formation are left for future research, as the
amount of participating households is minimal in comparison
to the size of the bidding pool.
The assumption is made that the electric storage space
heating consumers are optimizing their consumption using
linear programming methods presented in [7]. In practice,
similar programmes for storage space heating consumers are
already on the market [9] and could be augmented to other
prices than the direct spot price. In the model presented in
this paper, the consumer devices recalculate their control using
a rolling time-window, in order to optimize their charging
using more accurate forecasts and to take advantage of hourly
discounts. It is assumed that the retailer has knowledge of the
approximate parameters of the storage heaters connected to the
grid, and the estimated behavior of the consumers, in relation
to the given electricity price.
Controlling the load profile using variable pricing is chosen,
alternatively to direct load control and appropriate incentive
payments, for the customers to directly perceive the benefits,

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283

and because integrating other appliances such as direct heating

(e.g., [27]) could be achieved with similar dynamic pricing
control. In addition, the customers could possibly scale their
participation in accordance to their individual preferences.
However, in this case, the customer thermal comfort is not
affected, because the charging is merely deferred.
IV. P ROPOSED M ODEL
This section details the models employed to study the
optimization potential of electric storage space heating loads.
The point of view of the retailer is taken as the main
perspective, as it is the main player in the market scenario
formulated in Section III. The behavior of the consumers is
detailed first and then the price formulation mechanism of the
retailer. In addition, some assumptions made in the modeling
and subsequent simulations are clarified. In the following, the
consumers are given the decided price vector, be it the spot
price or the optimized price, directly without a margin for
profit and thus, in practice, the profits of the retailer could be
adjusted.
A. Consumer
The consumers considered in the model are residential
households equipped with electric storage space heating. The
electricity consumed by the individual consumers is divided
into inflexible (60% [31]) and heating loads (40%). The electric storage space heating separates the actual household heat
demand from the electric grid, as the energy is first charged
to the thermal storage and then distributed to the rooms
through water circulation. The charging can be scheduled by
minimizing the total hourly cost of electricity. The required
residence heating demand is taken into account, similar to the
model formulated in [7]. The charging of the heat storage units
is thus shifted to more economic periods, whereas the actual
heating is not affected.
The daily electricity price vector K = {K1 , K 2 , . . . , KH }
(e/kWh) is given to the consumers at the beginning of
the day. In addition, a heating demand vector Q is created
based on the weather forecast. The hourly charging rate
P = {P1 , P2 , . . . , PH } is then optimized by minimizing the
objective function
min

w.r.t. P

H


K t Pt

(1)

t=1

where H is the optimization horizon. The minimization can be

solved using the linear programming method while subject to
constraints including the initial storage level S0 , the maximum
storage level Smax , the hourly heating demand Q, the total
heating demand Emax , and maximum hourly charging power
of the heat storage units Pmax [7]. An ideal storage is assumed
without any storage losses.
Similar to the formulation in [7], the optimization horizon
is increased from the initial 24 h to eliminate the problem of
the full storage discharging at the end of the day. However, in
contrast, a rolling time-window is employed by the modeled
consumers, by recalculating the optimization hourly and only

Fig. 2. Simulation framework involved, where the consumer electricity price

is the input and the output is the resulting costs incurred to the retailer. The
consumer price vector is then optimized by simulating the shown model using
varying consumer prices with the objective of minimizing the costs.

applying the first charging power rate. This model-predictive

control approach brings the benefits of utilizing more accurate
hourly weather forecasts and enables hourly discounts from the
retailer to balance the intraday consumption profile.

B. Retailer
At 12:00 CET, the retailer has to submit its demand bids
for the following day. However, the selection of the consumer
price directly affects the electricity demand for the retailer.
Thus, determining the consumer price vector should most
likely be conducted even before the spot price vector Ks has
been formed, especially, since the volatility of the electric
storage space heaters and their near-binary optimal charging
cycles [7]. The prices for all the daily hours should be formed
in advance to enable the customers to determine their optimal
charging schedules in advance.
A similar multistage model is devised as presented in [27],
with the day-ahead planning of bought energy and its selling
price, real-time reaction of consumers based on the set prices
and current weather conditions, and subsequent regulation of
realized power imbalances. In contrast, in the presented model,
balancing is proposed for some of the hourly imbalances using
additional discounts from the decided consumer price, without
affecting the customer comfort. The optimization is performed
by simulating the consumer reactions using the model in
Fig. 2, while varying their electricity price. The costs incurred
to the retailer are then minimized.
1) At first, while the retailer bids for the amount of electricity to buy from the spot market, it takes optimization
into account, the effect of the consumer price on their
consumption profile.
2) During the day, the hourly imbalances can be alleviated
with adjustments to the consumer electricity price.
3) Then after the day is over, the final imbalances from the
day are settled.
For the retailer, the initial aim is to maximize its expected profits, while maintaining minimal imbalances E =
{E1 , E2 , . . . , EH }
E = E (P + L)

Et , Et < 0

Et =
0,
else

Et , Et > 0
Et =
0,
else.

(2)
(3)
(4)

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The expected profits can be expressed as

H



s
max E
Kt (Pt + Lt ) Kt Et t Et + t Et
w.r.t. K,E

t=1

(5)

where L is the inflexible load of the consumer, E is the bought

electricity, and are the up- and downregulation costs,
and Et and Et are the up and down imbalances. The
expected upregulation cost is higher than the spot price at the
given hour, whereas the return price of the downregulation is
lower, resulting in more expenses in case any demand has been
forecasted incorrectly. The decision variables of the retailer are
the bought energy E and the consumer price K. The expected
value of the profit is estimated over multiple scenarios of
varying inflexible loads, weather patterns, and spot prices. The
resulting profit is a realization of the inflexible load and the
spot price combined with the chosen consumer price, bought
electricity, and the resulting imbalance compensations.
For the retailer, it would be optimal to charge an approximately flat rate for all hours, whereas offering minimal
discounts at convenient hours. However, for these simulations,
the contract limits the consumer price to the same average
and price range as the realized spot price. Even with these
price constraints, the consumers could be driven to charge their
energy storages at prices, which would slightly favor the retailer, depending on the heating demand and other constraints.
However, the costs of the retailer are still mainly higher than
the income. The average and price range of the consumer price
contract could be shifted in practice with a margin, to account
for operating costs and additional inefficiencies. In this way,
the single retailer in this scenario cannot abuse its monopoly
position but can still adjust its profit margins.
When the imbalance for the following hour has been estimated, discounts can be deduced, which can offer smaller
costs than balancing with the regulating power. The decision
variables in the optimization are the discount K and the
percentage of consumers n to offer the discount to. The
minimizable objective function is the sum of the cost of
remaining regulating power, the lost income from the discounts, and general change in costs from consumers changing
their charging patterns. In case, additional consumption is
needed (i.e. Et > 0), discounts for the current hour are
issued. Conversely, when consumption needs to be curtailed
(Et < 0), a discount could be promised for the following
hour. The discount objective function presenting the costs
incurred due to the discounts given can be written as
max t (Et + Ptd Pt ) +

w.r.t. K,n

H


n(Kdk Pkd Kk Pk ) (6)

k=t

where t is the down- or upregulation price depending on the

sign of the remaining imbalance, P d is the consumption after
the discounts, and Kd is the price vector with the discount
K. The cost (6) is minimized similar to Fig. 2 over a series
of scenarios.
V. R ESULTS
This section describes how the effects of the proposed model
and pricing schemes are viewed with simulations. At first,

Fig. 3. Probability density functions of the initial and maximal storage

capacities of the electric storage space heater groups used in the simulations.

the simulated model is defined based on the optimization

model presented in Section IV. The employed constants and
assumptions are justified and the simulated scenarios constructed. The results are then displayed and examined.
A. Simulation Setup
In the following simulations, the distribution of the parameters of the consumer electric water heaters is assumed to be
obtainable by the retailer. In practice, the currently ongoing
spot pricing deployments [9] or estimation from an aggregated
load profile could offer insight on the actual values of the
heater parameters. For these simulations and optimization
problems, the heaters are grouped such that one group has
a maximal storage capacity of 75% of the maximal daily heat
demand, whereas the other two clusters are limited to 50%
and 25%. In the optimization of the prices and discounts,
three heater consumers representing the clusters are employed,
whereas in the simulations, randomized populations are drawn
from the average groups. Fig. 3 depicts the storage capacity
and the initial storage level distributions, which have been
chosen overly conservatively, to cover scenarios where the
parameter estimates are imprecise. The charging power of the
water heaters is set on average to 10 kW.
The expected profit of the retailer is assessed through
averaging simulations with varying scenarios for the spot price,
heating demand, and inflexible load. The simulation scenarios
are produced by evaluating the ability to forecast the variables
and then generating appropriate alternative realizations. The
spot price scenarios of Finland have been generated from
Nordpool data [28] from January 1 to 3, 2013. Similar to the
price scenario generation by Zugno et al. [27], a Gaussian
multivariate covariance structure is used with a covariance
matrix
C(i, j) = 2 e|ij|/
where is the standard deviation and is the exponential
decay. The standard deviation is chosen as the approximate
root-mean-square error (RMSE) value ( = 2.7 e) of the
Finnish spot price forecasting model in [32]. The exponential
decay was also set to 7, as in [27]. The generated simulation
and optimization scenarios can be seen in Fig. 4.
Similar scenarios are generated for the inflexible load of
the consumers, as well as the heating demand. The daily
average hourly direct heating demand was seen to be somewhat level in [33] and [7], and for the following simulations
again rather conservative forecasts are placed for the heating

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285

entails that the optima of the consumer optimizations are

not unique, and similarly the price optimization, the retailer
could also be nonunique. However, in practice, the consumer
consumption profile can be instructed to follow the desired
consumption, similar to Zugno et al. [27], without affecting
the costs of the consumers.
For the simulations, the new inflexible demand scenarios
are given a larger variance as opposed to the optimization
scenarios, to enable the additional balancing of imbalances resulting from the consumption of the retailers other customers.
The amount of simulated loads is set to 100 for each type of
cluster; according to the distributions defined in Fig. 3, all
20 price scenarios are simulated with 20 different inflexible
load scenarios, where the 400 simulations in total were seen
to representative of the chosen variables. All simulations also
consider different heating-demand scenarios. The optimization
horizon of the storage space heaters is 72 h, whereas the
optimizations are run for 24 h.
Fig. 4. Spot price, heating, and inflexible load scenarios used for optimization
of the consumer price and buying demand.

demand. The heating demand scenarios are also seen in

Fig. 4. The inflexible load scenarios are generated similarly,
using a multivariate Gaussian process with an exponentially
decreasing covariance structure. The standard deviation of the
load is determined by the hourly volumes of imbalance power
gathered from Fingrid [34] and Elspot [28]. A deviation of
= 5.69 104 kW was determined, and was again set
to 7 h.
The regulating power prices used in the simulations are
calculated from the average values of the ratios
=

,
Ks

.
Ks

= 0.62, when
The resulting averages are
= 1.48 and
also taking into account the fixed balance fee of 0.5 e/MWh
[35]. It should be noted that this model for the regulation price
entails a single regulation price scenario for each spot price
realization, but more sophisticated forecasting methods could
be used in realistic applications. The ToU pricing is set to
range from 10 P. M . to 7 A . M ., as is customary in Finland,
whereas the price is set to the same range and average as the
dynamic optimized pricing.
In the subsequent simulations, at first, the retailer determines
its daily required electricity, which is highly dependent on
the price it sets for the consumers. The price and electricity
acquisition are optimized with a few different scenarios, ranging from direct spot price to optimized pricing for customers.
Then, at each hour, all consumers determine their hourly
energy consumption by minimizing their individual cost of
energy for the following 24 h. Hourly imbalances between the
acquired energy and energy consumed by the customers are
determined by the retailer.
The optimization of the consumer price and the subsequent
simulations on the realized consumption are carried out in
MATLAB, using generic nonlinear optimization with a genetic
algorithm. The nonconvexity of the consumer cost functions

B. Simulations
The simulations carried out in this section are devised to
justify the price-based control potential of electric storage
space heating. The following scenarios are considered.
Spot price: Consumers given the direct electricity spot
price as their electricity price for current day.
Optimized price: Consumers given an optimized price
profile to adjust consumption profile optimally.
Optimized price and discounts: The optimized daily
consumer price vector is given hourly discounts to cut
down on imbalances.
ToU: Comparisons to the current ToU pricing are performed.
At first, when the daily spot price scenarios (Fig. 4) are
set as the consumer electricity price, the results can be seen
in Fig. 5. This figure details the inflexible and storage space
heating demand, the imbalance power of the retailer, and
the resulting profits. In addition to the mean values between
the simulations, the figures portray the 90th percentiles of the
variables. It can be seen how the elasticity of the electric
storage space heaters highly impacts the imbalance power
E. This imbalance is large because when acquiring the daily
electricity, the retailer must supply its demand bids before the
spot price has been determined. Therefore, when the realized
spot price is sent to the consumers, the actual consumption
differs from the expected. The simulations reveal the high
elasticity of the electric storage space heaters with respect
to the electricity price. The direct spot price without any
margin for retailer profit has been issued for the consumers,
and thus, the profit is negative due to the varying inflexible
load-prediction inaccuracies.
The high variations in the realized storage space heater
load can be mitigated by issuing the optimized price vector
for the consumers. Furthermore, the customer consumption
profile can be adjusted by selecting an optimized price vector
for the consumers. The optimization of the consumer price
is performed by taking into account the varying scenarios
generated (Fig. 4), and locating a price vector, which produces
an optimal consumer consumption profile, with respect to the

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Fig. 5. Realized consumption of the simulated storage space heaters and

inflexible loads charged with the daily spot price, the imbalance power, and
resulting profit per hour, including the 90% percentiles from the various
scenarios simulated.

Fig. 7. Realized consumption of the storage space heaters and inflexible loads
charged with a dynamic optimized price, the imbalance power, and resulting
profit per hour, including the 90% percentiles from the various scenarios
simulated.

Fig. 6. Spot price compared with the optimized price vector.

expected profit (4). The constraints described in Section IV-A

are also taken into account. The result of the price optimization
is presented in Fig. 6. The optimized price is then issued to
the consumers in a simulation under the same conditions as in
Fig. 5. The reduced uncertainty in the storage space heater
electricity consumption and the more optimal consumption
profile has improved the imbalance power E profile of
the simulations shown in Fig. 7. In addition, the profit is
less volatile and occasionally positive due to the difference
in the price of the bought and sold energy. The remaining
slight uncertainty in the storage space heater consumption
is due to the heating demand scenarios and the randomized
distribution of the heater constants. However, most of the
realized imbalance power is from the other consumers not
participating in the dynamic pricing.
Further consumption balancing is attempted by introducing
the discount calculated based on (6). If the retailer has surplus
energy, an optimized discount for select customers is offered
for the current hour. In case of a deficit, the consumers are
given a discount for the following hour. Fig. 8 presents the
simulation case where discounts have been offered at times
t = 3, t = 14, and t = 20. At t = 3, the positive imbalances
are compensated by additional consumption of the consumers.

Fig. 8. Realized consumption of the storage space heaters and inflexible loads
charged with the daily spot price and additional discounts at the indicated
locations, the imbalance power, and resulting profit per hour, including the
90% percentiles from the various scenarios simulated.

However, only slight deferring of consumption is achieved

with the promised future discounts. In contrast, at t = 14,
the potential for both deferring and increasing consumption
is present. However, the balancing discounts affect the consumption of the following hours.
C. Simulation Results
The preceding simulations showed how the electric storage
space heating devices could be used for optimizing the load in
a day-ahead market. Table I collects the numerical results from

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287

TABLE I
P ERFORMANCE M ETRIC C OMPARISONS F ROM VARIOUS S IMULATION S CENARIOS , I NCLUDING THE AVERAGES AND 90 TH P ERCENTILES

the simulations. The costs on the retailers side are a result

from the lack of any margin placed on the consumer price.
The simulations established the volatility of consumption
when the consumers are charged with the electricity spot
price. A more reasonable outcome was achieved with a more
predictable pricing scheme of using an optimized price vector.
The low cost per kilowatt makes the direct spot price a
lucrative option for the consumer. However, the uncertainty
from the retailers point of view would raise the actual charged
price. The optimized price offers a slightly higher average
price for the consumer, but the reduced costs on the side of
the retailer make it a far better option. The ToU pricing, which
is in place currently in some markets, offers the most comprehensive opportunities for the consumers to adopt the most
optimal charging hours but does not fully reflect the economic
interests of the retailer. The yearly reduction for the retailer in
costs per consumer would be, with the simulated consumption
requirements, in the order of dozens of euros per consumer
per year.
D. Sensitivity Analysis
One-at-a-time sensitivity analysis was performed on the
model, comparing the effect of the spot price estimate variance, the variance of the inflexible demand estimates, and the
amount of simulated households on the resulting profits and
imbalances. A variation of 20% in the spot price estimate
variance results in a 4% change in the profits, whereas the
deviation in the real demand with respect to the expected
demand induces a 2% change. However, a significant effect
(12%) is seen on the variance of the profit from the spot price
variance, whereas the demand variations affect a markedly
lower amount (2%). This major effect on the variances explains the somewhat large percentiles in Table I, as the
variation of costs is largely an effect of the spot price variance.
In addition, the amount of simulated loads was varied, with
the effect of changing the variance of the profit only by a
minute amount (0.7%). In terms of convergence, during the last
100 simulations, the average profit of the retailer converged to
staying within 2.5% variation observed in all the simulations,
from the final mean.
VI. D ISCUSSION
The use of the proposed approach is not limited to load
following with electric storage space heating, as similar pricing
mechanisms could be studied and utilized for all systems
capable of shifting load or storing energy. In case regulation
prices become more volatile [36] or could be anticipated, the
benefits of the additional discounts could be even greater.

Directly issuing the spot price of electricity to the consumers

requires automated devices for the consumer to optimally set a
consumption schedule, but with such systems becoming available [9], they could readily be augmented with the necessary
technology for even more dynamic pricing, as suggested in
this paper. The price of implementing the pricing system, even
with the hourly discounts, might not be significant if smart
home technologies with advanced monitoring, control, and
billing features exist. Existing mobile networks (3G, GPRS)
could be utilized in sending the required price information, in
addition to direct powerline communication (PLC) [37]. The
more laborious task would be determining and monitoring the
storage space heater parameter distribution of the collaborating
consumers.
VII. C ONCLUSION
Smarter pricing mechanisms are a part of the techniques
developed in the smart grid initiative for enhancing the robustness of the future electric grid. This paper investigated
how especially electric storage space heating customers can
be incentivized, with a price-based DR program, to defer
demand to desired hours. A model was devised to study
the consumer load profile-shaping potential of storage space
heating. The storage space heating consumers were modeled
with the ability to optimize their charging schedules using
linear programming, by minimizing the cost of electricity for
the day. Conversely, the objective of the retailer is to maximize
the daily profit from reselling the energy.
The optimized price was shown to potentially provide
smaller costs for the retailer, whereas the direct spot price
and ToU were slightly preferable for the customer, with the
chosen constraints. Additionally, the daily imbalances were
found to be able to be compensated, when hourly discounts
were allocated with consideration. Much of the variations
in the costs were the result of the spot price variations.
In conclusion, customers with electric storage space heating
could be incentivized with dynamic pricing to defer their
consumption to desired hours. In addition, their elasticity
enables the retailer to profitably further balance the hourly
electricity acquisition and resale imbalances, or potentially
even employ the consumers in ancillary services.
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Olli Kilkki, (S14) photograph and biography not available at the time of
publication.

Antti Alahaivala, photograph and biography not available at the time of

publication.

Ilkka Seilonen, photograph and biography not available at the time of

publication.