Applied Energy 248 (2019) 35–43

Contents lists available at ScienceDirect

Applied Energy
journal homepage: www.elsevier.com/locate/apenergy

Time-of-use pricing model based on power supply chain for user-side T

microgrid☆
⁎
Kaile Zhoua,b,c, , Shuyu Weia,b, Shanlin Yanga,b
a
School of Management, Hefei University of Technology, Hefei, China
b
Key Lab of Process Optimization and Intelligent Decision-making, Ministry of Education, Hefei University of Technology, Hefei, China
c
City University of Hong Kong, Kowloon, Hong Kong Special Administrative Region, China

H I GH L IG H T S

• TOU pricing model based on power supply chain is proposed.

• Bullwhip effect of the power supply chain is investigated.
• TOU price for end users with storage devices can optimize discharging behavior.
• Costs of the whole electric power supply chain are reduced by the model.

A R T I C LE I N FO A B S T R A C T

Keywords: The user-side microgrid offers great potential for improving energy efficiency. This flexible and small-scale
Time-of-use pricing power system is characterized by multiple types of clean power supplies. The power supply chain can reveal the
User-side microgrid supply-demand relationships in the series of steps from power generation to consumption. However, electricity
Distributed energy storage prices tend to vary and can significantly affect the actual energy costs to end-users and other entities in the
Power supply chain
power supply chain. In this study, we propose an optimization model of time-of-use pricing for the user-side
microgrid from the perspective of power supply chain management. The objective of this model is to minimize
the total cost of the power supply chain and optimize the charging-discharging behaviors of end-users. First, to
reduce the impact of demand amplification and variation, we investigated the bullwhip effect of the power
supply chain. Then, we considered distributed energy storage as an important component of the user-side mi-
crogrid and how electric power companies can utilize pricing strategies to optimize the charging-discharging
behaviors of end-users. We performed experiments based on two scenarios that assumed end-users with and
without distributed energy storage devices. A comparative analysis of the modelling results indicates that op-
timal time-of-use pricing can support the charging-discharging behaviors of residential users and reduce the cost
of the entire electric power supply chain. The optimized time-of-use price is important for stability, flexibility,
and efficiency improvement in both the user-side microgrid and the entire power supply chain.

1. Introduction persistent balance from generation to consumption. This ensures that

With the rapid development of the world’s economy, energy and
environmental problems are becoming increasingly severe [1]. The
demand for sustainable and clean energy is increasing [2]. Distributed
energy resources (DERs) have become a key driver for the transfor-
mation and development of modern electric power systems [3].
The unique characteristic of electric power is that it must maintain a
the electric power supply chain of “procurement-generation-transmis-
sion-distribution-consumption-storage” remains interconnected and
indivisible throughout the entire power system operation [4]. The
conventional power system supplies electric power to the demand side
mainly through centralized large-scale power plants. In recent years,
owing to the support of advanced information and communication
technologies, the smart grid has made it convenient for residential users

☆
The short version of the paper was presented at CUE2018, Jun 5–7, Shanghai, China. This paper is a substantial extension of the short version of the conference
paper.
⁎
Corresponding author at: School of Management, Hefei University of Technology, Hefei, China.
E-mail address: zhoukaile@hfut.edu.cn (K. Zhou).

https://doi.org/10.1016/j.apenergy.2019.04.076
Received 14 November 2018; Received in revised form 31 March 2019; Accepted 15 April 2019
Available online 20 April 2019
0306-2619/ © 2019 Elsevier Ltd. All rights reserved.
K. Zhou, et al.
to monitor their energy consumption directly and interactively [5]. As
an indispensable part of smart grid, a microgrid consists of many dis-
tributed generation sources and storage components that have self-en-
ergy-management capabilities [6].
The main tasks of a user-side microgrid include provision, control,
management, and storage of electric power energy. The implementa-
tion of user-side microgrid has a great impact on the electricity con-
sumption behavior of residential users [7], and thus on the power
supply chain management. For example, under the user-side microgrid
environment, the operational process of the electric power system can
be expanded and changed to the form of “procurement-generation-
transmission-distribution-consumption-storage-integration-redistribu-
tion” [8]. Thus, the prominent characteristic of the user-side microgrid
is that it includes bi-directional electric power flow and real-time in-
teraction information flow; these characteristics provide great flex-
ibility for both power suppliers and end-users. Moreover, the microgrid
is an indispensable part of the smart grid, which can support the bal-
ance between power supply and demand, and improve the stability of
the electric power system [9]. With the wide promotion of user-side
microgrid, the utility functions of most concern to the end-users are the
electricity costs and power quality. However, the DERs in the user-side
microgrid, such as photovoltaic power, wind power and distributed
energy storage, are characterized by randomness, intermittency, small
capacity, diversity, and flexibility [10]. Therefore, when more and
more user-side microgrids are integrated into the main power grid, it is
necessary to adjust and optimize the behaviors of end-users with ex-
ternal signals, such as incentives and prices, so as to improve the sta-
bility and reduce the costs.
Demand side management (DSM) is a critical emerging strategy that
enables both power suppliers and end-users to optimize electricity
consumption behavior based on incentive or price signals [11]. There
are mainly two types of demand response (DR) programs for DSM, i.e.,
incentive-based DR and price-based DR programs [12]. The incentive-
based DR programs are triggered by incentive payments, and they are
planned changes of electricity consumption behaviour that users have
agreed. In contrast, the price-based DR programs aim to change the
electricity consumption behavior of end-users and reduce the total costs
of the electric power supply chain by implementing different electricity
pricing strategies [13]. End-users who have distributed energy storage
devices can choose either grid-connected electric power supply or
electric power self-sufficiency. The integration of distributed energy
storage devices is beneficial to the power system operation and the
implementation of DR programs, since they can be charged from the
distributed power generation during valley-load periods, and the stored
electric power can be fed back into the main power grid during peak-
load periods [14], thus promoting the achievement of peak shaving and
valley filling. They can also stabilize voltage and frequency, and pro-
vide a spinning reserve to meet sudden changes in power demand [15].
The time-of-use (TOU) pricing is a typical price-based DR program.
Through implementing different prices during different time periods,
TOU price can stimulate the electricity consumption changes and pro-
mote more flexible supply-demand interaction [16]. Furthermore, the
TOU price can also reduce energy costs and enhance the stability of the
power system.
In the user-side microgrid environment, to minimize the total costs
for the electric power supply chain, we propose an optimization model
of TOU pricing for end-users with distributed energy storage devices. To
reduce the impact of demand amplification and variation, we first in-
vestigate the bullwhip effect of the power supply chain. Then, we
propose a TOU pricing model for end-users who have distributed energy
storage devices, which can also optimize their charging-discharging
behavior. As a substantial extension of our published conference paper
[17], this study presents additional improvements on the rationality of
the pricing model. The results and discussions have also been expanded.
36
Applied Energy 248 (2019) 35–43
2. Literature review
Driven by the rapid development of distributed power generation
and distributed energy storage, user-side microgrid has attracted more
and more attention from academic research and industrial development
community. User-side microgrid is a type of more flexible, small-scale,
diversified and low-carbon power energy supply form near the user
side. Distributed photovoltaic power generation, wind power, energy
storage devices and some other DERs are usually incorporated in the
user-side microgrid. It can operate in both island mode and grid-con-
nected mode [18]. Currently, the related research efforts on user-side
microgrid mainly falls into the following aspects, namely system con-
trol [19,20], system structure development [21], system optimization
[22,23], decision-making [24] and service model innovation of mi-
crogrid [25].
TOU pricing is popular price-based DR [26,27]. Through appro-
priate diving peak, valley and flat periods and developing different
price levels, it has great potential to peak shaving, valley filling and
load shifting [28]. TOU pricing plays an important role in user-side
microgrid, and some research efforts have focused on the TOU pricing
development and the effect of TOU price on mocrigrid [29]. Anvari-
Moghaddam et al. [30] developed an optimal smart home energy
management model to reduce the domestic energy usage and utility
bills, and it can also support task scheduling and a thermal comfort
zone. Based on TOU price mechanism, Wang et al. [31] proposed an
operating dispatching method of microgrid that includes energy storage
unit and controlled microsource. Derakhshan et al. [32] developed an
optimization model for load scheduling of residential consumers under
different electricity price, such as TOU price, real-time price and critical
peak price. Lu et al. [22] investigated the multi-objective optimal dis-
patch of microgrid containing electric vehicles, under the TOU pricing
environment. Zhang et al. [33] developed a TOU pricing mechanism
based on the short-term supply-demand relationship and a price-based
demand response model based on the substitution elasticity in the
stand-alone microgrid environment. Considering the volatile electricity
market, Chen and Trifkovic [34] presented an optimal scheduling
strategy for a microgrid under TOU pricing. Li et al. [35] proposed a
price decision method for multiple microgrids considering demand re-
sponse, and a genetic algorithm is used to determine the best price for
each microgrid and the load service entities.
Generally, the electric power supply chain is the whole chain pro-
cess from the provision of raw materials, to power generation, trans-
mission, transformation, distribution and to power consumption. Power
supply chain can be used to build an equilibrium model to calculate the
cost of the electric power grid, promote carbon emissions control, and
facilitate energy and environmental policy formulation [36]. Ding et al.
[37] considered the service supply and government policies, and de-
veloped a service supply chain to outsource a pollutant-reduction ser-
vice to meet the environmental constraint. Liu and Nagurney [38]
proposed an electric power supply chain network model with fuel
supply markets, and both of the economic network transactions and the
physical network transmission constraints are included in the electric
power network. Dou et al. [39] investigated the risk aversion of electric
power supply chain, and developed a model to maximize the revenue of
electricity power supply chain and minimize the risk of electricity re-
tailers. Chen et al. [4] developed a modified electric power supply chain
model with transmission limits for optimal social welfare, and used a
mathematic modelling framework to deal with the interactions among
decision-makers in the power supply chain.
In summary, there have been some research efforts on the user-side
microgrid, the TOU pricing in user-side microgrid, and the electric
power supply chain currently. However, the existing literature has fo-
cused more on developing the internal structure and interacting with
the external environment, but less on setting the user-side microgrid as
a part of the whole power supply chain. The research effort on the
pricing mechanism development of power supply chain with DERs and
K. Zhou, et al. Applied Energy 248 (2019) 35–43

User-side micro-grid
Bulk power Distributed energy
system resources

User-side Load

Energy
storage
devices

Fig. 1. Basic structure of a user-side microgrid.

distributed energy storage units is rare. To fill this gap, we propose an
optimization model of TOU pricing for the user-side microgrid from the
perspective of power supply chain management. The main objective of
this study is to examine whether the TOU pricing model will support
the discharging behaviour of the end-users and how this pricing will
influence the costs of power supply chain.
3. User-side microgrid and electric power supply chain
As shown in Fig. 1, the basic structure of a user-side microgrid in-
cludes DERs and energy storage devices.
A supply chain represents the whole chain structure, which includes
suppliers, manufactures, distributors, retailers, and wholesalers. The
basic concept of a supply chain involves delivering products to con-
sumers through various processes that begin with purchasing the raw
materials, then manufacturing the intermediate and final products, and
finally delivering the products to the consumers through the sales
network [40]. As an intangible product, electric power flow includes a
chain of processes from the generators to the consumers, and there are
supply-demand relationships between each participant in this chain.
The processes of electric power generation, transmission, distribution,
and storage in the power supply chain are connected and interact with
each other to meet the energy demand of end-users [41].
The traditional power supply chain can be divided into several
major stages: raw material supply, power generation, power transmis-
sion, power distribution, power selling, and power consumption [42].
For the user-side microgrid, the supply chain includes some additional
stages, such as power purchasing, power storage, and grid integration
[43]. Therefore, the basic structure of an electric power supply chain
with the user-side microgrid is shown in Fig. 2.
Cost management methods can be used to calculate the costs and
benefits of the entire electric power supply chain, and to determine the
overall optimal cost. Here, we apply the total cost analysis method to
the electric power supply chain with user-side microgrid to determine
the minimum total cost.
The total cost of the electric power supply chain with user-side
microgrid covers power generation, transmission, distribution, pur-
chasing, consumption, storage, and installation of distributed sources
and subsidies for electric power grid enterprises, as shown in Eq. (1):
n
Csc = ∑ [F × G + μρk P k + ρuk P k + ρsk + CDER
k
+ CPk ]
k=1 (1)
where n is the total cycle index of the power supply chain; k is the
frequency of the cycle; F is the operational cost of a generating unit in
the traditional power plant; G is the number of working generating
units; μρ k P k is the total cost of power loss during transmission ( ρ k is the
electricity price, P k is the amount of power transmission, and μ is the
power loss rate during transmission); ρuk P k is the cost of electricity to
the end-users ( ρuk is the user-side electricity price); ρsk is the total cost of
energy storage devices; CDER k
is the total cost of DERs; and CPk includes
subsidies and other costs.
4. Time-of-use pricing and energy storage devices
4.1. Time-of-use price
TOU pricing refers to the application of price signals to guide and
adjust user behavior. Through these price signals, users can modify
their charging and discharging behaviors efficiently. At the same time,
the electricity demands during peak-load and valley-load periods can be
adjusted appropriately [44], and the installation of newly electric
power generating units can be reduced. As a result, the overall benefits
of the supply chain can be improved effectively.
When the user-side microgrid is connected to the traditional power

Power User-side Microgrid

Raw material Power generation Power transmission Power selling Power consumption
distribution
Equipment Power
Enterprise purchasing
Power Power
Power Grid Power Selling End-users
Generation Distribution and
Company Enterprise
Coal Enterprise Sales Enterprise Power s torage
Enterprise

Grid-integration

Fig. 2. Electric power supply chain with user-side microgrid.

37
K. Zhou, et al. Applied Energy 248 (2019) 35–43

grid, it is important to understand the electricity charging and dis- distributed energy storage devices (ξi, t = 0 means not discharging;
charging behavior for the distributed storage devices. For electricity ξi, t = 1 means discharging), and Di, t is the amount of electricity dis-
charging, it is necessary to consider the household electricity con- charged from user i at time t.
sumption, and it should also be noted that the electricity from the
distributed energy storage devices is intermittent and unstable. From 5. Optimization model of time-of-use price
the power supply side, the losses during the energy conversion process
for each user-side energy storage device must be considered. However, With the rapid development of the smart grid, advanced informa-
this study focuses on investigating the influence of TOU pricing on end- tion technologies have provided the technical foundation for users to
users with distributed energy storage devices from the perspective of participate in the interaction with the power supply chain. Therefore,
demand. The user-side energy storage devices are treated as a single we introduce TOU pricing for household energy storage integration as a
unit, which is called a distributed energy storage device. way to optimize the mode of user electricity consumption while ac-
The relationship between the load transfer rate and the electricity counting for the government's influence on distributed generation
price is modelled as follows: subsidies. TOU pricing is aimed at adjusting the power load of the end-
p v users with distributed energy storage devices, coordinating the re-
, 0 ⩽ Pout − Pout < ap − v
⎧0 p v sources on the generating side and the load side, and reducing the
k (P − P − a ) p v max
λp − v = p − v out out p − v , a p−v ⩽ P out − Pout < λ p − v k p − v + ap − v overall cost of the electric power supply chain.
⎨ max
λp − v p v max
, Pout − Pout ⩾ λp − v kp − v + ap − v The objective function of the proposed TOU pricing model is the
⎩
(2) total cost of the power supply chain. Eq. (5) shows that the total cost
includes the cost burden on the power transmission and distribution
where λp − v is the transfer rate from the peak period to the valley period; enterprises, the cost of consumption to the end user, the cost of dis-
p v
Pout is the electricity discharging price during the peak period, and Pout is tributed energy storage devices, the cost of DERs, and the cost of sub-
the electricity discharging price during the valley period of end-users sidies to the power company.
with distributed energy storage devices. The remaining variables are
consumer behavior psychological parameters, which measure the min F (Pit , Uit , ρuser
t t
, ρstor )
willingness of the end-users to accept the TOU price; kp − v is the cor- T N
⎧ ∑i = 1 [f (Eit ) + Sit (1 − Uit − 1)] Uit+ ⎫
relation coefficient of the consumer behavior, and ap − v is the lowest = min ∑ N k ∑N P t + ρ t P t
TOU price difference that the consumers can accept [45]. As for the t=i
⎨∑ stor
C t
payi + μρ i user + ρ t
ω (ρ t
) ⎬
⎩ i=1 i=1 user stor user ⎭
transfer rates from the peak period to the flat period (λp − f ) and from the (5)
flat period to the valley period (λ f − v ), the electricity price and the
corresponding parameters in Eq. (2) can be adjusted. where T is the time period; N is the total number of units; f (Eit ) is the
Then, the number of end-users Nstor t
discharging their distributed operating cost of unit i at time t, and f (Eit ) = ai Eit2 + bi Eit + ci ; Eit is the
electric power storage at time t is defined as follows: active power of unit i at time t; Sit is the start-up cost of unit i at time t;
Uit is the state of unit i at time t (0 is the stop and 1 is the boot) [46];
Nt 0 + λp − v Nv + λp − f Nf , t ∈ Tp t
⎧ Nstor is the number of users with distributed energy storage devices; μ is
⎪ t
t
Nstor = Nt 0 − λp − f Np + λ f − v Nv , t ∈ Tf the cost of waste during electricity transmission in the power grid; Puser
⎨ t
is the user-side load at time t; ρuser is the electricity price to the end user
⎪ Nt 0 − λp − v Np − λ f − v Nf , t ∈ Tv (3)
⎩ t
at time t; and ω (ρuser ) = Pout Nt is the discharging capacity (Pout is the
where Tp , Tf , and Tv are the peak, flat, and valley periods, respectively, discharge power of the battery and Nt is the number of discharging
and Nt0 is the initial number of discharging end-users without the ap- devices at time t).
plication of TOU pricing. Terms Np , Nf , and Nv are the numbers of The constraints include the electric power balance, start rate of the
discharging distributed energy storage devices during the peak, flat, generating units, active power capability, minimum start-stop time of
and valley periods, respectively, before the implementation of TOU the generation units, TOU price for household distributed energy sto-
pricing. rage, and stability of the average price.
n nout

4.2. Discharging behavior of end-users

t
∑ Pit + ∑ poutj t
= pgrid t
+ puser
i=1 j=1 (6)
The bi-directional interaction of the user-side microgrid with the
Rredi ⩽ Pit + 1 − Pit ⩽ Rinci (7)
main power grid based on price signals enables end-users to discharge
to the grid when necessary. This interaction is key to effectively PU t
⩽ Pit ⩽ Pi Uit (8)
̲i i
changing the structure of the power market by household microgrid
side users through distributed energy storage. Moreover, this interac- on on t t+1
⎧ (ti − Ti )(Ui − Ui ) ⩾ 0
tion is important for transforming traditional power grids into smart off off
⎨ (ti − Ti )(Ui − Uit + 1) ⩾ 0
t + 1
(9)
grids and can transform electric power enterprises from traditional ⎩
power suppliers to energy service providers, hence fully mobilizing the According to constraint (6), the sum of the power output of the
enthusiasm of end-users to realise the goal of peak shaving and valley entire system and the electricity discharge from the household dis-
filling. Therefore, it is important to analyze the bi-directional energy tributed energy storage at time t must be equal to the sum of the total
flow in the user-side microgrid, as described in Fig. 3. system load and the grid loss and the consumption by the end-users. In
In this process, power companies compensate the users that are constraint (7), Rredi represents the maximum load reduction rate (a
connected to the microgrid. The compensation price at which the power negative value) while Rinci represents the load growth rate (a positive
company purchases electricity from user i at time t can be obtained value). In constraint (8), P̲i and Pi are the lower and upper limits, re-
from Eq. (4), as follows: spectively, of the power output capacity of the generating units. In
Ci,pay pay constraint (9), tion represents the running of generator unit i at time t ,
t = ξi, t ρi, t Di, t (4)
Tion is the minimum permissible running time of generator unit i,
where ρi,pay
t is the price at which the power company purchases elec- tioff represents the shutdown of generator unit i, Tioff is the maximum
tricity from the end-users with distributed energy storage, ξi, t is a 0–1 shutdown duration of generator unit i, and Uit is the state of generator
switch which measures the discharging state of the end-users with unit i at time t .

38
K. Zhou, et al.
Direct current
generatrix
Distributed
Grid-connected
energy resources
converter
Energy storage
devices
Fig. 3. Energy flow in user-side microgrid.
Raw material suppliers Traditional power plants
1 2
Distributed resources
1' 3
Level 1 Level 2
Raw material flow
Distributed power flow
Fig. 4. Simplified model of power supply chain with user-side microgrid.
6. Bullwhip effect
The bullwhip effect refers to a phenomenon of demand variation
amplification along the supply chain. When demand information is
transmitted from the final client to the original supplier, the informa-
tion flow is not performed effectively, and the information itself is
distorted and enlarged at each step, thereby producing increasing
fluctuations in the information [47].
The bullwhip effect is important in studying the electric power
supply chain because this concept describes the difference between the
access of large-scale DERs to the power grid and the integration of the
user-side microgrid into the power grid. In addition, the bullwhip effect
means that the demand signal for power generation is amplified and
transmitted up the supply chain to the raw material suppliers. This will
mislead capacity planning by the coal enterprises and render their
production plan turbulent [48]. In addition, the fuel inventory cost to
the power plant's core enterprise will increase. This is the largest part of
the power generation cost to traditional power plants, and if other
factors (such as storage losses and coal price increases) are considered,
the excess inventory caused by the bullwhip effect will seriously affect
the economic benefits of the entire power plant [49]. In addition to the
partial monopoly that characterises the current electricity supply chain
in China, the large-scale integration of DERs changes the power supply
structure from a single source to dual sources, which results in random
supply and random demand. These changes affect the accurate trans-
mission of electricity demand information and induce the bullwhip
effect [50]. Therefore, if end-users install distributed energy storage
39
Applied Energy 248 (2019) 35–43
Independent bidirectional
measurement
Bulk power
system
User-side
load
End-users
4
DERs
Level 3
Information flow
Power flow
devices, the appearance of the bullwhip effect and the anti-bullwhip
effect of the power supply chain would provide a direct comparison
with the large-scale integration of DERs into the bulk power grid. The
result of this comparison is expected to show that the optimization
model of the system that integrates the user-side microgrid into the
main grid will avoid the shortcomings caused by the instability of the
alternative system that integrates DERs directly into the bulk power
grid.
In summary, the bullwhip effect of the power supply chain increases
the production costs of upstream and downstream enterprises, and also
causes the loss of coal resources. Therefore, by identifying the causes
and influencing factors, and changing laws of the bullwhip effect in the
power supply chain, we can find an effective suppression strategy to
achieve the goal of reducing resource waste, ensuring power supply,
and achieving stable development of the national economy.
6.1. Simplified model of power supply chain
First, according to the characteristics of integrating DERs into the
bulk power grid, we constructed a three-level power supply chain
consisting of raw material suppliers, traditional electric power plants,
DERs, and end-users. The raw material suppliers and distributed re-
source supply are in the first level; the traditional power plants and
DERs, which mainly use fossil fuel and distributed resources to generate
electricity, are in the second level; and the end-users are in the third
level. For end-users that have energy storage devices connecting to the
bulk grid system and DERs, the model structure is shown in Fig. 4.
K. Zhou, et al. Applied Energy 248 (2019) 35–43

The most representative traditional power plant is the thermal
power plant, for which the amount of coal delivered to the coal supply
company should be considered. The amount of coal (q1, t ) delivered at
time t is defined as follows:
q1, t = y1, t − y1, t − 1 + x1, t − 1
At time t − 1, the actual coal consumption of the thermal power
plants is x1, t − 1 and the target inventory of coal at time t is y1, t .
It is efficient to represent the demand ( x1, t ) for raw materials by the
thermal power plants by the coal consumption that is required for
power generation, i.e.
x1, t = β1 x2, t
where x2, t represents the consumption rate of coal (or the consumption
of raw material of per electric power) and β1 represents the amount of
electric power generated from the thermal power plants.
Assuming that electricity demand is preferentially met by DERs
(such as wind), x2, t represents the remaining electric power after con-
sidering that the electricity generated by the wind power plant ( x3, t ) has
supplied part of the electric power demand ( x 4, t ) as follows:
x2, t = x 4, t − x3, t
Therefore, based on the aforementioned equations, the quantity of
coal according to the demand of thermal power plants can be estab-
lished as
q1, t = y1,T̂ t − y1,T̂ t − 1 + x1, t − 1
where ytT̂ represents the estimated value of the coal target stock in the
period T starting from time t.
Two issues should be considered in estimating the demand for coal
by the thermal power plants: one is the amount of coal required for the
thermal power generation itself, and the other is the amount of coal
required for power generation by thermal power backup units, which
must be prepared to cope with the uncertainty of wind energy re-
sources. Due to the intermittency, volatility, and randomness of DERs,
the raw material required by these backup units would have a great
impact on power transmission when the DERs are integrated into the
bulk power grid, and more so when the scale of installed capacity of
wind energy resources is expanding. To ensure the stability of power
transmission and the real-time satisfaction of user demand, the thermal
power plants must undertake the task of absorbing wind power, such as
by preparing some thermal power units as backups in advance. Hence,
when the wind power plants fail to generate electricity due to changes
in wind speed, the thermal power plant can use the standby unit to
generate sufficient electric power to meet the customer demand.
Accordingly, the thermal power plants would be prepared to accom-
modate a certain ratio (θ) of wind power generation as follows:
N = x 4,T̂ t − x 4,T̂ t − 1 + x 4, t − 1
M = −x 3,T̂ t + x 3,T̂ t − 1 + θx 3,T̂ t − θx 3,T̂ t − 1 − x3, t − 1
where N is the electricity demand of the end-user and M is the amount
of power generation from DERs.
Therefore, the equation for the amount of raw material purchased
(q1, t ) can be established as
q1, t = β1 (N + M )
6.2. Bullwhip effect of power supply chain
The bullwhip effect is expressed as the ratio of the variance of the
order quantity received by the supplier to the variance of the customer
demand. Accordingly, the bullwhip effect of the power supply chain
(12)
could be measured by the ratio of the variance of the coal order
quantity, Var (q1, t ) , to the actual demand, Var (x1, t ) [51] as follows:
BwE = Var (q1, t ) Var (x1, t ) (19)
According to the analysis of each part of the power supply chain and
the bullwhip effect of the power supply chain with distributed energy
storage devices, the bullwhip effect is defined as
(13)
3q + 2 − 2ρ4q (1 + q)
BwE =
q2 (20)
where ρ4qis the autocorrelation coefficient of the raw material demand
[52].
In addition, the bullwhip effect of the large-scale integration of wind
energy resources into bulk power grid can also be represented theore-
tically, as follows:
(14) σ42 3q + 2 − 2ρ4q (1 + q)
⎛ ⎞+ϕ
1 − ρ42 ⎝ q2
⎠
BwE AR (p) =
σ42 2 t a
+ θWPG
1 − ρ42 b t (21)
where AR (p) is the type of wind speed prediction model, ϕ is the re-
(15) levant prediction equation [36,37], q is the raw material requirement,
σ4 is the random error, θWPG is the relevant coefficient for the wind
power plant, and at and bt are the distribution parameters of the wind
speed.
7. Results and discussions
7.1. Value of distributed energy storage
This section examines the stability of the power supply chain in
which end-users have distributed energy storage devices relative to an
alternative power supply chain in which large amount of DERs are in-
tegrated directly into the power grid in some way. The bullwhip effect
was examined on both of the two systems.
According to the regional data on electric power demand, the au-
tocorrelation coefficient of raw material demand was set as ρ4 = 0.821,
and the wind power plant coefficient was set as θWPG = 0.063. According
to the data from American Wind Energy Association (https://www.
awea.org/resources/press-releases), the values of the wind speed dis-
tribution parameters for each month is shown in Table 1.
Fig. 5 shows the simulation results of the bullwhip effect when
100 MW of large-scale wind power was integrated into the bulk power
(16) grid (BwE of WER), and the corresponding power supply chain included
distributed energy storage devices (BwE of DES).
(17) According to the results of the bullwhip effect simulation, when the
large-scale wind power is connected to the power supply chain, and if
the user demand is relatively stable, the supply chain will have a sig-
nificantly stronger bullwhip effect compared to the system with dis-
tributed energy storage devices. This observation indicates that the
power supply chain with distributed energy storage devices is more
sensitive and consequently would consume less raw material for power
(18) generation. The strong bullwhip effect means when the user demand is

Table 1
Values of wind speed distribution parameter for each month.
Month 1 2 3 4 5 6 7 8 9 10 11 12

at 8.29 8.14 8.35 9.03 8.02 5.68 4.76 5.02 6.98 6.74 8.03 8.24
bt 1.24 1.21 1.23 1.18 1.03 0.75 0.67 0.81 0.72 0.94 1.14 1.18

40
K. Zhou, et al.
Fig. 5. Bullwhip effect of different types of power supply chain.
fixed, power generation would waste more raw materials than when the
bullwhip effect is weak.
7.2. Results of the time-of-use price model
This section examines the simulation of 200,000 users and a 5%
penetration (10,000 end-users) of distributed energy storage. The
charge and discharge power of the storage battery was 10 kW, and its
capacity was 50 kWh. The initial discharging time was sampled from a
normal distribution. For the setting without TOU pricing, the electricity
price was 0.72 Yuan/kWh without exception. For the setting with TOU
pricing, the charging-discharging time periods were set as follows: the
discharging peak periods were 9:30–11:30, 14:30–17:30, and
18:30–21:00; the discharging valley periods were 7:00–9:30,
11:30–14:30, 17:30–18:30, and 21:00–00:00; and the discharging flat
period was 00:00–7:00. The electricity price of discharging was set as
1.40 Yuan/kWh. The loss rate of the power transmission network was
5%, and the cost of the network waste was 0.72 Yuan/kWh.
Two scenarios (scenario 1 and scenario 2) were designed. In sce-
nario 1, we used the proposed model and set the corresponding TOU
price; thus, the discharging was ordered. In scenario 2, without TOU
pricing, the discharging was disordered. In both scenarios, the end-
users had distributed energy storage. According to the optimization
model, the optimal discharge pricing scheme was obtained: the prices
to the end-users during the peak, valley, and flat periods were 1.69,
1.15, and 1.40 Yuan/kWh, respectively.
Fig. 6 shows the total load of the system with and without TOU
pricing.
According to Fig. 7, when the end-users install distributed energy
Fig. 6. Total load of the system with or without TOU price.
41
Applied Energy 248 (2019) 35–43
storage devices and TOU pricing is implemented, the fluctuation of the
total system load reduces, thereby achieving peak shaving and valley
filling.
The implementation of TOU pricing encourages users to incorporate
stored energy into the power system, such that decentralised power
supply can be integrated into the traditional power grid. TOU pricing
can also reduce the start-stop costs of generating units, which can sig-
nificantly reduce the costs of the power supply chain.
Fig. 7 shows the total costs of the power supply chain obtained by
gradually expanding the installation of DERs and energy storage de-
vices for the two designed scenarios.
According to Fig. 7, the total cost of power supply chain in scenario
1 (ordered discharging with TOU pricing) is significantly lower than
that in scenario 2 (disordered discharging without TOU pricing).
Moreover, as the number of end-users increases, the potential cost
saving from ordered discharging with TOU pricing becomes more sig-
nificant.
7.3. Practical implications
The results of our simulations have demonstrated that TOU pricing
for end-users with distributed energy storage can support their dis-
charging behavior from the perspective of the power supply chain.
Considering the bullwhip effect, our results indicated that the power
supply chain is much more stable if end-users have distributed energy
storage devices. This finding sends an important message that society
can benefit from power supply chains that include distributed energy
storage devices and advances the values of energy saving and en-
vironmentally friendliness. These results also provide more analytical
K. Zhou, et al.
Fig. 7. Total costs of electric power supply chain.
aspects of the future success of the electricity trading market in which
energy will be viewed as a commodity. Furthermore, the results of our
entire series of experiment have proven that our TOU pricing model can
support the orderly charging and discharging behavior of end-users and
reduce the costs of the power supply chain. In other words, by com-
bining pricing policy and cost control, end-users with distributed en-
ergy storage devices will have a prominent role in the future electricity
trading market and contribute to improvements in energy efficiency.
8. Conclusions
This study established a TOU pricing model based on the power
supply chain for user-side microgird, in which the end-users have dis-
tributed energy storage devices. The objective of the TOU pricing is to
minimize the costs of the whole power supply chain. It also investigated
the impact of TOU pricing on both the power suppliers and the end-
users with DERs and energy storage devices.
The simulation results showed that, through the implementation of
the proposed TOU pricing model, the costs of power supply chain can
be reduced. Moreover, the costs reduction is more significant with the
increasing of end-users in the user-side microgrid. It is also conductive
to the development of distributed energy storage devices and the de-
velopment of user-side microgrid. With TOU price signals, the end-users
can be motivated to interact with the other subjects in the power supply
chain more actively through load reshaping. As a result, the flexibility
of the power supply chain and the stability of the power system can be
further improved.
Acknowledgements
This work is supported by the National Natural Science Foundation
of China (Nos. 71822104, 71521001 and 71690235), Anhui Science
and Technology Major Project (No. 17030901024), Hong Kong Scholars
Program (No. 2017-167), China Postdoctoral Science Foundation (No.
2017M612072), and the Fundamental Research Funds for the Central
Universities (JZ2018HGPA0271).
References
[1] de Carvalho AL, Antunes CH, Freire F. Economic-energy-environment analysis of
prospective sugarcane bioethanol production in Brazil. Appl Energy
2016;181:514–26.
[2] Peker M, Kocaman AS, Kara BY. Benefits of transmission switching and energy
storage in power systems with high renewable energy penetration. Appl Energy
2018;228:1182–97.
[3] Nosratabadi SM, Hooshmand RA, Gholipour E. A comprehensive review on mi-
crogrid and virtual power plant concepts employed for distributed energy resources
42
Applied Energy 248 (2019) 35–43
scheduling in power systems. Renew Sustain Energy Rev 2017;67:341–63.
[4] Mengjen C, Yifan H, Yuchi W. Modified penalty function method for optimal social
welfare of electric power supply chain with transmission constraints. Int J Electr
Power Energy Syst 2014;57:90–6.
[5] Farhangi H. The path of the smart grid. IEEE Power Energ Mag 2010;8(1):18–28.
[6] Olivares DE, Mehrizi-Sani A, Etemadi AH, et al. Trends in microgrid control. IEEE
Trans Smart Grid 2014;5(4):1905–19.
[7] Chauhan R, Phurailatpam C, Rajpurohit BS, Gonzalez-Longatt FM, Singh SN.
Demand-side management system for autonomous DC microgrid for building.
Technol Econ Smart Grids Sustain Energy. 2017;2:4.
[8] Vu TL, Turitsyn K. A framework for robust assessment of power grid stability and
resiliency. IEEE Trans Autom Control 2017;62:1165–77.
[9] Kabalci Y. A survey on smart metering and smart grid communication. Renew
Sustain Energy Rev 2016;57:302–18.
[10] Rahman MS, Oo AMT. Distributed multi-agent based coordinated power manage-
ment and control strategy for microgrids with distributed energy resources. Energy
Convers Manage 2017;139:20–32.
[11] Durana JGD, Barambones O. Technology-free microgrid modeling with application
to demand side management. Appl Energy 2018;219:165–78.
[12] Zhou K, Yang S. Demand side management in China: The context of China's power
industry reform. Renew Sustain Energy Rev 2015;47:954–65.
[13] Yi W, Chen Q, Kang C, Xia Q. Clustering of electricity consumption behavior dy-
namics toward big data applications. IEEE Trans Smart Grid 2016;7:2437–47.
[14] Haddadian G, Khalili N, Khodayar M, Shahidehpour M. Optimal scheduling of
distributed battery storage for enhancing the security and the economics of electric
power systems with emission constraints. Electr Power Syst Res 2015;124:152–9.
[15] Ioakimidis CS, Thomas D, Rycerski P, Genikomsakis KN. Peak shaving and valley
filling of power consumption profile in non-residential buildings using an electric
vehicle parking lot. Energy 2018;148:148–58.
[16] Hoang DT, Wang P, Niyato D, Hossain E. Charging and discharging of plug-in
electric vehicles (PEVs) in vehicle-to-grid (V2G) systems: A cyber insurance-based
model. IEEE Access 2017;5:732–54.
[17] Zhou K, Wei S. Time-of-use price model for user-side micro-grid based on power
supply chain management. Energy Procedia 2018;152:51–6.
[18] Lasseter RH. Microgrids and distributed generation. J Energy Eng
2007;133(3):144–9.
[19] Lopes JAP, Moreira CL, Madureira AG. Defining control strategies for MicroGrids
islanded operation. IEEE Trans Power Syst 2006;21(2):916–24.
[20] Guerrero JM, Vasquez JC, Matas J, de Vicuna LJ, Castilla M. Hierarchical control of
droop-controlled AC and DC microgrids—A general approach toward standardiza-
tion. IEEE Trans Ind Electron 2010;58(1):158–72.
[21] Bidram A, Davoudi A. Hierarchical structure of microgrids control system. IEEE
Trans Smart Grid 2012;3(4):1963–76.
[22] Lu X, Zhou K, Yang S, Liu H. Multi-objective optimal load dispatch of microgrid
with stochastic access of electric vehicles. J Cleaner Prod 2018;195:187–99.
[23] Zhou K, Yang S, Chen Z, Ding S. Optimal load distribution model of microgrid in the
smart grid environment. Renew Sustain Energy Rev 2014;35:304–10.
[24] Marzband M, Parhizi N, Savaghebi M, Guerrero JM. Distributed smart decision-
making for a multimicrogrid system based on a hierarchical interactive archi-
tecture. IEEE Trans Energy Convers 2016;31(2):637–48.
[25] Shi L, Luo Y, Tu GY. Bidding strategy of microgrid with consideration of uncertainty
for participating in power market. Int J Electr Power Energy Syst 2014;59(7):1–13.
[26] Albadi MH, El-Saadany EF. A summary of demand response in electricity markets.
Electr Power Syst Res 2008;78(11):1989–96.
[27] Galvis JC, Costa A. Demand side management using time of use and elasticity price.
IEEE Lat Am Trans 2016;14:4267–74.
[28] Muralitharan K, Sakthivel R, Shi Y. Multiobjective optimization technique for de-
mand side management with load balancing approach in smart grid.
Neurocomputing. 2016;177:110–9.
K. Zhou, et al.
[29] Pallonetto F, Oxizidis S, Milano F, Finn D. The effect of time-of-use tariffs on the
demand response flexibility of an all-electric smart-grid-ready dwelling. Energy
Build 2016;128:56–67.
[30] Anvari-Moghaddam A, Monsef H, Rahimi-Kian A. Optimal smart home energy
management considering energy saving and a comfortable lifestyle. IEEE Trans
Smart Grid 2017;6:324–32.
[31] Wang X, Lü Z, Tang Z. Multiobjective dynamic optimal dispatching of grid-con-
nected microgrid based on TOU power price mechanism. Power Syst Protect
Control 2017;45(4):9–18. [in Chinese].
[32] Derakhshan G, Shayanfar HA, Kazemi A. The optimization of demand response
programs in smart grids. Energy Policy 2016;94:295–306.
[33] Zhang Y, Ren S, Yang X, Bao K, Xie L, Qi J. Optimal configuration considering price-
based demand response for stand-alone microgrid. Electric Power Automat Equip
2017;37(7):55–62. [in Chinese].
[34] Chen Y, Trifkovic M. Optimal scheduling of a microgrid in a volatile electricity
market environment: Portfolio optimization approach. Appl Energy
2018;226:703–12.
[35] Li B, Roche R, Paire D, Miraoui A. A price decision approach for multiple multi-
energy-supply microgrids considering demand response. Energy 2019;167:117–35.
[36] Khosrojerdi A, Zegordi SH, Allen JK, Mistree F. A method for designing power
supply chain networks accounting for failure scenarios and preventive main-
tenance. Eng Optim 2016;48:154–72.
[37] Ding H, Hua H, Ou T. Sustainable supply chain collaboration with outsourcing
pollutant-reduction service in power industry. J Cleaner Prod 2018.
S0959652618306905.
[38] Liu Z, Nagurney A. An integrated electric power supply chain and fuel market
network framework: Theoretical modeling with empirical analysis for New
England. Nav Res Logist 2010;56:600–24.
[39] Dou X, Yang LI, Wang B, Xue C. Risk distribution of electricity supply chain. Electric
Power Automat Equip 2012;32:11–5.
43
Applied Energy 248 (2019) 35–43
[40] Yao M, Minner S. Review of multi-supplier inventory models in supply chain
management: An update. Social Science Electronic Publishing; 2017.
[41] Maharana HS. An analysis of power supply design in networking systems on the
practices of supply chain management. Int J Econ Bus Res 2014;3:81–6.
[42] Tang C, Tomlin B. The power of flexibility for mitigating supply chain risks. Int J
Prod Econ 2016;116:12–27.
[43] Xue C, Wang X. Study on government subsidy decision-making of straw power
generation supply chain. Procedia Eng 2017;174:211–8.
[44] Huang H, Cai Y, Xu H, Yu H. A multiagent minority game based demand response
management of smart buildings toward peak load reduction. IEEE Trans Comput
Aided Des Integr Circ Syst 2017;36:573–85.
[45] Lei X, Liu JL, Dang XQ. Research on pricing mode of large consumers in electricity
supply system. Proceedings of the Chinese Society of Universities for Electric Power
System & Its Automation, vol. 22. 2010. p. 60–6.
[46] Nahman J, Bulatovic S. Power system operating cost and committed generation
capacity planning. IEEE Trans Power Syst 1996;11:1724–9.
[47] Lee HL, Padmanabhan V, Whang S. The bullwhip effect in supply chains. IEEE Eng
Manage Rev 2015;43:108–17.
[48] Fransoo JC, Wouters MJF. Measuring the bullwhip effect in the supply chain.
Supply Chain Manage 2012;5:78–89.
[49] Ma J, Bao B. Research on bullwhip effect in energy-efficient air conditioning supply
chain. J Cleaner Prod 2017;143:854–65.
[50] Bray RL, Mendelson H. Information transmission and the bullwhip effect: An em-
pirical investigation. Manage Sci 2012;58:860–75. Social Science Electronic
Publishing.
[51] Hau L, Padmanabhan V, Seungjin W. The bullwhip effect in supply chains. Eng
Manage Rev IEEE 2015;43:108–17.
[52] Zhao Y, Cao Y, Li H, Wang S, Liu Y, Li Y, Zhang Y. Bullwhip effect mitigation of
green supply chain optimization in electronics industry. J Cleaner Prod
2018;180:888–912.