On the scalability of supply cost for demand management in the smart grid

Demand side management focuses on flattening the demand profile, reducing network losses, costly investments in network infrastructure and generation capacity. The supplier pursues a profit for the service it provides. In addition, in demand-side management, the supplier modifies its pricing scheme in order to charge a fair price to each user. In this sense, the price is expected to increase during peak demand. For this reason, the supplier needs to know his supply cost to propose a reasonable price scheme. However, there has been scarce interest in finding a supply cost function that enables to develop of a real and scalable model of the supplier-user interaction. In the literature, a bi-level optimization has been proposed to model the supplier-user interaction and some supply cost functions were proposed without any analysis. In this paper, a new supply cost is proposed, and it is compared with the supply cost functions found in the literature analyzed. The proposed supply cost shows good performance, and it can be scalable.