Optimal pricing strategy to reduce fuel consumption in electricity generation with smart meter

It has been widely recognized that the efficiency of a thermal power system can be improved by technological advancement of electricity generation and manipulation of electricity consumption. The smart meter enables two-way communication between the customers and the electricity generation system. The electricity generation system uses price incentive (i.e. a higher price in the peak period and a lower price in the off-peak period) to shift part of demands from peak to off-peak period under the smart grid environment. Given the fact that fuel consumption in each period is a strictly increasing convex function of power output, we propose two-period and multi-period pricing strategies, and study the effect of different pricing strategies on reducing fuel consumption.