Managing demand uncertainty with cost-for-deviation retail pricing

Jianmin Zhu, Seyed A. Vaghefi, Mohsen A. Jafari, Yan Lu, Ali Ghofrani

Research output: Contribution to journalArticlepeer-review

11 Scopus citations


The current rate structures for the electricity retailing exposes utility providers to the full wholesale market risks, and fail to incentivize end-use customers to better estimate and track their loads. In this paper, we propose a Cost-for-Deviation (CfD) retail-pricing scheme, which is designed to minimize the demand uncertainty of individual customers or communities. We formulate day-ahead planning and real-time tracking optimization problems for individual buildings. We also formulate CfD pricing scheme for community of two buildings and devise a collaboration scheme by which the two buildings negotiate. Both centralized and distributed negotiation mechanisms are presented, and the significance of adopting a transaction cost for fair-trading is discussed. A series of experiments demonstrate that CfD pricing is able to reduce demand uncertainty in a building or a community. Hence, a community's cost of hedging quantity risk in the real-time market also reduces. Our conjecture is that by the virtue of end users being in a position to closely monitor their daily loads and by paying fines for not adhering to their plans would ultimately benefit energy efficiency and will reduce infrastructure costs.

Original languageEnglish (US)
Pages (from-to)46-56
Number of pages11
JournalEnergy and Buildings
StatePublished - Apr 15 2016

All Science Journal Classification (ASJC) codes

  • Civil and Structural Engineering
  • Building and Construction
  • Mechanical Engineering
  • Electrical and Electronic Engineering


  • Demand side management
  • Demand uncertainty
  • Electricity retailing
  • Model-predictive control
  • Transactive energy


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