Cooperative consumers in a deregulated electricity market — dynamic consumption strategies and price coordination

As the trend in electricity markets is strongly towards deregulation, new players, new rules and new behaviors will continue to emerge. One of the new developments on the demand side is purchases made by a coalition of consumers. It seems indeed likely that in the future this will be more common, and that coalitions of consumers will emerge when they are worthwhile. The aim of this paper is to study how such an organization of consumers can be set up in a hierarchical framework. This new approach has not been described before in the deregulated electricity markets but is clearly an important research topic. We focus our interest on electric space heating, which is an energy need especially important in the Nordic countries such as Finland. We examine the consumption strategies of individual electricity buyers within a coalition. The decision problem all consumers face is to find the optimal use of their space heating system with respect to changes in electricity prices and to their tolerance to indoor temperature variation. A mathematical model for this problem is defined. Physical parameters of sample houses were gathered from an experimental field test conducted in Helsinki during the winter of 1996. The coalition buys in the market at marginal cost. However, as marginal cost pricing may not always fulfill metering and communication needs of the members of the coalition, we consider Time-Of-Use (TOU) pricing within the coalition. Different groups of consumer behavior are constructed to simulate this coalition. The optimal marginal price is used as a reference point to estimate the nearest TOU price within the coalition.