Optimal electricity pricing in a microgrid network

The evolution of microgrid and its demand-response characteristics not only will change the paradigms of the century-old electric grid but also will shape the electricity market. In this new scenario, once always energy consumers, now may act as sellers due to the excess energy generation from the newly deployed distributed generators (DGs). In this paper, we propose a novel mathematical model and its solution methodology to minimize the overall electricity price. The model is nonlinear and nonconvex due to the nonlinear and nonconvex characteristics of the marginal costs. To solve the minimum electricity price model (MEPM) problem efficiently and optimally, we decompose the problem into two subproblems: overall marginal cost problem (OMCP), and minimum cost allocation problems. A solution of OMCP determines the boundary of the overall marginal costs, and the allocation problem maps the optimal amount of energy from sellers to buyers for minimum price. The MEPM solution uses a divide-and-conquer method that divides the overall marginal cost boundary (solution OMCP) into two and determines the allocations for minimum cost, interactively. We compare MEPM with a first come first serve pricing scheme.