The design of a time-of-use tariff with a demand charge for residential electric vehicle charging posts

Time-of-use tariffs have been widely adopted to manage the charging demand of electric vehicles within residential communities. However, the growing penetration of EVs has led to challenges, particularly over-response during off-peak periods. Currently, residential consumers in China are served by the grid company at a privileged price, which excludes network tariffs. In early 2024, the National Development and Reform Commission of China issued Guideline No. 1721, requiring the implementation of ”a differentiated pricing mechanism for the charging demand”. Consequently, while traditional household demand remains at the favorable price, innovative tariffs tailored for residential charging posts are being encouraged to address the increasing charging demand. Drawing on international experiences in tariff design, this study proposes a time-of-use tariff with a demand charge (ToU-D) for EV charging. Under this scheme, each EV owner reserves a monthly charging capacity and pays for the consumed energy according to a ToU tariff, but is subject to a penalty energy price for the charging profile above the reserved capacity. A mixed-integer bilevel optimization model is developed, where the upper level represents the grid company aiming to minimize wholesale electricity purchase costs subject to a regulated profit rate, while the lower level represents residential consumers aiming to minimize their electricity bills. To demonstrate the model’s adaptability to unbundled retail market settings, it is extended to consider network tariffs of different structures. The bilevel model is solved by transforming into a single-level one using a heuristic method that minimizes the duality gap of the lower-level problem, due to the existence of binary variables at the lower level. An empirical analysis based on realistic data reveals that the proposed tariff not only mitigates over-response issues and generates substantial economic benefits for both the grid company and EV owners overall, but also indicates that less flexible EV owners may face increased charging costs.