Bilevel Model for Retail Electricity Pricing

The advent of smart electricity meters is bound to affect the electricity distribution sector in more ways than one can imagine. Thus, companies involved in the retail electricity market will need to adjust to the new conditions, especially with regard to the electricity pricing, which constitutes an important part of the activities of a retailer. In this work, a bilevel model is proposed as a tool for facilitating the retailer's task in optimally selecting price levels to be announced to various local resources composing his portfolio. Application of proper linearizations allows obtaining and equivalent one-level mixed integer linear programming problem (MILP) which is solved using CPLEX solver under GAMS. Examination of several scenarios regarding the form of the pricing scheme shows that the number of time zones as well as the grouping/assignment of each hour of the day to one time zone or another affects significantly the profitability of the retailer's business.