Social Profit Optimization of Competitive Electricity Market: A Leader-following Approach

In electricity markets, it is quite possible for market participants to make strategies to harvest their maximal profits without considering others. The result of this is usually at the expense of the overall social profit loss, which will impair the sustainability of society in the long term. Hence, in this paper, we discuss how to improve the social profit of the market based on demand response (DR) management. In the proposed model, we analyse two sorts of interaction mechanisms: Nash equilibrium (NE) and Stackelberg equilibrium (SE) among utility companies (UCs) and user-UC interactions, respectively. Users focus on maximizing their own profits by determining the optimal energy purchasing strategies from different UCs. At the UC side, we consider two types of UCs: governmental UC (g-UC) and normal UC. A g-UC acts as the market leader and focuses on optimizing the social profit of the market on behalf of the government; normal UCs play games with their rivals and seek NE solutions. Additionally, an independent system operator (ISO) is established to provide pricing guidance to g-UC so as to improve the social profit without changing the “selfish instinct” of normal UCs. The feasibility of the proposed algorithm is verified by mathematical analysis and numerical simulation.