Quantify Benefits of Home Energy Management System Under Dynamic Electricity Pricing

Retail electricity rates have been kept flat for the past century due to the lack of advanced metering technology and infrastructure. The flat-rate structure prevents consumers from responding to the fluctuation of actual costs of electricity generation, which varies hourly (or even minute-by-minute). The absence of demand response leads to an electricity system that is overly built with costly assets, solely to maintain system reliability. One of the core visions of the future electricity system, referred to as Smart Grid, is to use advanced metering infrastructure (AMI) and information technology to enable dynamic electricity rates. The main goal of this paper is to present an approximate dynamic programming (ADP) based modeling and algorithm framework that can make home energy management systems capable of optimally managing the appliance usage using the information of anticipated whole electricity prices. The other goal of the paper is to use the modeling framework to provide numerical evidence to the debate that if dynamic rate structure is superior than the current flat rate structure in terms of reducing peak demand and overall electricity costs.