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Abstract--Smart Grids have permitted the implementation of
Demand Response (DR) programs and have also improved the
control of Distributed Energy Resources (DER). In this paper we
obtain a model of DR of a group of customers, based on DR pilot
projects data and using Artificial Neural Networks (ANN). We
neglect the low voltage electrical network assuming that clients
and DER (e.g. Photovoltaic Generators) are directly connected to
distribution transformers. With the knowledge of the clients DR
model we will define an optimal distribution pricing (e.g. TOU
pricing) to minimize the costs related to distribution network
congestion: Energy Not Supplied Costs for network congestion,
Energy for Voltage Quality Penalty Costs, Technical Losses
Costs. On the other hand in this work we will assume that
Photovoltaic Generation units do not have Energy Storage
Systems (ESS), and PV generation will be considered as a
negative demand in households. In a later work we will consider
that energy from PV ESSs can be dispatched in such a way that
clients receive more economic benefits because of electricity price
differentials through the day.

Index TermsSmart grids, demand response, dynamic
pricing, distribution management systems, cost optimization,
distributed energy resources, photovoltaic generation, artificial
neural networks, heuristic optimization algorithms.
I. INTRODUCTION
HE need of secure and reliable electric power supply
caused a transition of transmission and generation systems
from traditional SCADA to Energy Management Systems
(EMS). During the last years, more concern has been paid to
distribution systems giving place to DMS, due to several
reasons as [1]:

- Distribution grids are no longer passive load systems due
to the installation of Distributed Generation, making the
network operation more complex.
- The need of a platform capable of supporting advanced
computer operational applications.

Nowadays, Distribution Management Systems (DMS) are at
the center of any Smart Grid, as they help to operate the

J uan P. Palacios is with Universidad Nacional de San Juan, Av. Libertador
San Martin 1109 Oeste, San J uan Capital, Argentina (e-mail:
jpalacios@iee.unsj.edu.ar).
Mauricio E. Samper is with Universidad Nacional de San J uan, Av.
Libertador San Martin 1109 Oeste, San J uan Capital, Argentina (e-mail:
msamper@iee.unsj.edu.ar).
Alberto Vargas is with Universidad Nacional de San J uan, Av. Libertador
San Martin 1109 Oeste, San J uan Capital, Argentina (e-mail:
avargas@iee.unsj.edu.ar).

Distribution Grid more effectively avoiding power outages
and reducing consumer outage duration. DMS leverage
Advanced Metering Infrastructure, Distributed Generation as
well as Alternative Energy and Demand Resources. The DMS
models, simulates, manages intelligent automated field
devices, it also offers more options and capabilities for more
refined grid management [2]: Integration of Advanced
Metering Infrastructure (AMI), Integration of Distributed
Generation, Energy Storage Control, Demand Response,
Electrical Vehicle Charging Management, Asset
Management/Equipment Diagnostics, Power Quality
Management, Integration with Microgrids and Demand
Response for Reliability.
Smart Grid technology, specifically AMI and Metering
Data Management (MDM), represent a great source of
information about customers behavior and consumption
patterns. AMI systems generally utilize two-way
communication to obtain meter reads, remotely
disconnect/reconnect customers and alert utilities of other
meter issues, thereby reducing operating costs and equipment.
MDM systems facilitate the implementation of AMI,
dynamic pricing, and energy conservation as well as the
automation of utility distribution operations and maintenance
activities. MDM systems serve as a recording system for all
meter data, provide real-time access to the data and provide
the pricing for dynamic pricing programs. The MDM system
also serves as the integration point between the AMI network
and the utilitys enterprise systems, ensuring the availability of
meter data to the rest of the Smart Grid functions [3].
Real time data from consumers and producers provided by
MDM and communication infrastructure are useful for the
implementation of Demand Response. Based on real time data
and demand/production forecasts, if the DMS determines the
need to adjust the demand, clients can be influenced to modify
their consumption by means of different kind of incentives as
dynamic pricing, price rebates or other means. In this sense a
key issue for the implementation of an effective Demand
Response Program is the determination of optimal dynamic
electricity pricing to satisfy certain operational objective,
which in this paper will be the minimization of distribution
system operational costs.
Distribution networks have historically received fewer
investments in capacity compared to generation and
transmission systems. Some consequences of the above are the
violation of feeder loading and voltage operative limits, with
huge economic consequences as Energy Not Served Costs
(ENSC) and penalty costs for poor voltage quality. In this
J uan P. Palacios, Graduate Student Member, IEEE, Mauricio E. Samper, Member, IEEE and Alberto
Vargas, Senior Member, IEEE
Dynamic Pricing for Smart Distribution
Networks Efficient and Economic Operation
T
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sense demand response may be useful to avoid the high costs
of load shedding and voltage quality penalties, by assigning
pricing incentives to off-peak demand times, with the aim that
customers shift their consumption from peak to off-peak
demand times, or simply reduce their peak demand.
II. DEMAND RESPONSE
The Federal Energy Regulation Commission defines
Demand Response as the change in normal patterns of
electricity consumption of end customers, in response to
changes in the price of electricity over time, or in response to
payment of incentives with the aim that: 1) Clients pay the
actual market price; and 2) clients shift their consumption to
times of low market prices or when reliability is jeopardized.
An example of pricing program is Real Time Pricing (RTP).
In RTP, hourly wholesale market prices are assigned to clients
as a pass-through, expecting that they reduce their demand
when electricity prices are high, with the effect that wholesale
market prices are also reduced in peak demand times.
Recent studies have shown that despite the many
advantages that the dynamic pricing models bring; lack of
awareness among users about how to respond to variable rates
over time and the lack of effective residential automation
systems are two barriers to the efficient use of benefits of
dynamic rates. In this sense a reliable and effective demand
response simulation model is fundamental to describe the
clients price responsiveness.
A. Static Rates vs. Dynamic Rates
Static or flat rates include a hedging or risk because
customers pay the same amount regardless of the cost impact
on the supplying utility. The utility is responsible for
purchasing power in the wholesale market exposing itself to
market volatility; this purchasing cost is eventually passed
through to customers in the long term, in the flat rate.
The purpose of dynamic pricing is to provide customers
with more accurate price signals (i.e., wholesale market
prices), with the aim of incentivizing demand response,
thereby helping the utility to avoid high wholesale market
prices, as in the case of Market-Based RTP.
From a rate design perspective, a static (or flat) rate is
economically inefficient because it shields customers from
wholesale market price volatility. As we move from traditional
flat rates to more flexible rate options such as TOU, CPP, and
RTP, wholesale price signals are passed on to customers and
these customers are given the option to respond by shifting
demand.
B. Demand Response Characterization
Demand response programs can be classified in Price-based
demand response and Incentive-based demand response.
Price-based demand response is related with changes in
clients consumption in response to variation in electricity
prices. This group includes time-of-use (TOU), real time
pricing and critical-peak pricing (CPP) rates. Clients energy
bills can be reduced if they take advantage of price
differentials throughout the day. TOU is a rate that includes
different prices for usage during different periods throughout
the day. This rate reflects the average cost of generating and
delivering power during those periods.
RTP is a rate in which the price of electricity is defined for
shorter periods of time, usually 1 hour, reflecting changes in
wholesale price of electricity.
Customers usually have the information of prices on a day-
ahead or hour-ahead basis. In figures 1 and 2 we present a
time of use pricing rate and real time pricing rate respectively.



Fig. 1. Price-based demand response: 3-rates TOU pricing




Fig. 2. Price-based demand response: Real time pricing

In figure 3, we show the effects of Market-Based RTP on the
wholesale markets prices. We show the marginal costs curve
of a generation system, and demand curves, for different times
of the day. Assuming that demand is responsive to prices, it
can be disaggregated in elastic and inelastic demand. Energy
price in this curve is limited by a price cap (Pcap). If a flat rate
pricing program was adopted, customers would not have a
signal to react to. At 18:00 if RTP scheme was not adopted,
electricity market price would be P
3
. Thanks to RTP, the
market price at 18:00 is P
2
, which is lower than P
3
.
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Fig. 3. Price-based demand response: Real time pricing

Incentive-based demand response includes programs that
give customers incentives that are additional to their electricity
rate, which may be fixed or time-varying. This group includes
programs such as Direct Load Control (DLC),
Interruptible/Curtailable Service (ICS), et al. Some of these
programs penalize customers that fail the contractual response
when events are declared. DLC is program that considers a
remote shut down or cycle of a customers electrical
equipment.
C. Price elasticity
With the aim to estimate how much the demand will vary as
electricity price changes, distribution planners need a model to
describe the consumers response to prices. The price
elasticity rate is a normalized measure of the intensity of how
the usage of electricity changes as price changes by one
percent. The price elasticity of demand E
d
can be defined as:

E
d
=

d

d
PP
(1)

Where
d
is the energy demand (kWh), and P is the
electricity rate ($/kWh).
Price elasticity of demand is negative by definition, hence
sign is usually omitted. If E
d
< 1 demand is inelastic, while if
E
d
> 1 demand is elastic.
Two types of price elasticity can be defined [4]: 1) Own-
price elasticity which measures how customers will change the
consumption at time t

due to changes in price at time t

, this
elasticity takes a negative value as customers reduce their
consumption in response to prices. 2) Cross elasticity which is
defined as the change in demand at time t

due to changes in
price at time t
]
. Cross elasticity will be either positive or zero
depending on whether the costumer is willing to shift the load
or not.

E
d
(i, i) =

d
(t

)
d
P(t

)P
(2)


E
d
(i, ]) =

d
(t

)
d
P(t
]
)P
(S)

Self-elasticity is a measure of load curtailment by the
consumer while cross elasticity is a measure of load shifting.
Both these constituents put together make the concept of price
elasticity matrices and DR.
For a RTP scenario that has hourly varying rates, PEM will
be of the order 24 x 24. The diagonal elements of the PEM
represent self-elasticity coefficients and the off-diagonal
elements represent cross elasticity coefficients. The overall
change in load at time t

due to change in price throughout the

day can be obtained by summing up the entire row
corresponding to t

as shown in (4).

d
(t

) = E
d
(i, ])
24
]=1
(P(t
]
)P)
d
(4)
D. Customer Behavior Demand Response Models
To understand the customers motivation and likelihood to
respond to different types electrical pricings a customer
behavior model must be assessed. The following review
considers only customer behavior models. The price elasticity
matrix concept has been used in [4, 5] for demand response
estimation. But in both papers authors assume that price
elasticities are static and cannot be trained.
In [5] a day-ahead wholesale bidding mechanism for
demand response was presented. The authors used the concept
of price elasticity matrices to model the demand response.
They describe different kind of loads in terms of price
elasticity matrices. Nevertheless this paper does not report a
methodology to define a price elasticity matrix based in field
data.
In [4] the consumers responsiveness behavior to prices was
modeled using 24-hour price elasticity matrices. Different
price elasticity matrices models were developed for five
categories of consumers which were grouped with the aid of
consumers responsiveness behavior cognitions. The DR
model was tested with 24-hour real time pricing rates, in the
IEEE 123 node test feeder. From this test it was demonstrated
that DR has a great potential to boost the distribution systems
voltage at most of critical nodes at the end of the feeders. A
drawback of this model is that it is neither dynamic nor
adaptive, as it assumes that the price electricity matrices are
constant from day to day, and moreover the work in [4] does
not contribute with a methodology to determine a model based
in field data.
In [6] a micro-economic model estimates the customer
response to economic incentives. The model estimates the
demand response of single customers by classifying them
socio-demographically. The model was initialized with
observed price/demand correlations in pilot DR programs.
Adaptive Neuro-Fuzzy Inference System - ANFIS) was
employed to minimize errors between measurements and
metered values. After obtaining the individual models, these
were aggregated to obtain the DR at substations feeders bays.
A disadvantage of this micro-economic model is that it needs
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too many inputs, and requires high computation time to
converge, making it difficult to use as a real time application.
In [7] the model presented in [6] was used to determine a
group of clients aggregated DR. However, the computation
time increased due to the number of clients influenced by the
DR, making it difficult to use the model of [6] for real-time
applications. In this sense, in [8] a different model that
estimates directly the DR of a group of customers was
proposed and simulated. Based on Artificial Neural Networks
(Artificial Neural Networks-ANN) the model presented in [6]
was "trained" with electricity pricing and correlated demand
data. This model has the advantage to be retrained periodically
with the latest data, updating the clients responsiveness to
electricity prices. An interesting review of ANN for Short-
Term Load Forecasting can be found in [9].
In [8] an electricity pricing optimization was performed
with the aim of minimizing the daily demand profile variance,
with the restriction that there is no change in the profit margin
for energy sales. Based on an optimization problem, TOU
rates with two and four different prices throughout the day are
obtained and compared. The optimization problem determines
the electricity prices and prices temporal duration. Better
results are obtained with the implementation of TOU rates
with four different prices.
In the model presented in [8] however, distributed
generation is not considered (Distributed Generation - DG),
hence this consideration would modify the problem statement,
as it would give the customer the choice to manage the
consumption of their own generation (i.e. residential
photovoltaic generation). This model however does not take
into consideration the costs associated to the distribution
network congestion and the costs associated to voltage quality.
III. THE SMART DISTRIBUTION NETWORK EFFICIENT AND
ECONOMIC OPERATION PROBLEM
A. Proposed Approach
Information about pricing and consumption patterns
collected through AMI and aggregated by MDM systems can
be analyzed for the development and implementation of
dynamic pricing programs. This kind of research is commonly
known as customer behavior studies [10] and its goal is to
analyze the customers response to different electricity rate
levels. With the results of these studies a dynamic pricing plan
can be prepared to comply with technical constraints and
economic goals of utilities. In this way dynamic pricing
programs can be implemented to adjust price levels, to
establish energy saving policies and to defer system
investments [11].
Customers can receive dynamic pricing information through
smart meters with two-way communication capability or
internet web sites. End-user decisions about energy usage can
be manually implemented and also automatically with the use
of smart home appliances.
Once the data is extracted from MDM systems and is
conveniently arranged, the element that should be analyzed is
the customers price responsiveness, which gives the change
in quantity demanded in response to change in price.
The information used to develop a dynamic pricing program
varies continuously and can be automatically organized and
analyzed to update the dynamic pricing schemes if an
intelligent decision-making application is available.
B. Problem Framework
The problem is proposed from the Distribution Network
Operator (DNO) point of view. The DNO is able to purchase
energy from the electrical market and from residential
costumers photovoltaic generation. The market offers energy
at wholesale-market RTP price and costumers at a feed-in
price. Feed-in-tariffs are established to incentivize the
integration of renewable energy in the electricity and have
different rates in different countries [12]. With these tariffs
renewable energy producers are better remunerated per kWh
produced than traditional energy producers.
In the proposed framework, the regulation permits the DNO
to propose a distribution pricing different than RTP in an
ethical manner. In this sense the distribution pricing cannot be
greater than RTP.
The PV system does not consider an Energy Storage
System; in this sense the energy produced is directly used by
the consumers or injected to the distribution network, in an
uncontrollable manner.
The objective of this work will be minimize the distribution
network operational costs by means of an optimal distribution
pricing, considering also PV generation from residential
consumers.
C. Problem Statement
With the demand/prices information collected and
aggregated through the MDM system and the residential
customers solar power forecasts, we will implement an
intelligent decision-making application for distribution
network operation with the aim of accomplishing these main
tasks:

1) Obtain a demand response model of a group of residential
customers enrolled in a DR program. As output of this
model we will determine 24-hour price elasticity matrices.
2) Evaluate the DR model response to market-based RTP
rate variations through the day, in matters of feeder
congestion levels.
3) Optimize the RTP rate (announced by the market
operator) with the aim of minimizing the distribution
network operation costs which will be later described. As
a result of this optimization we will obtain a 24-hour
distribution pricing.

In figure 4 a flowchart of the proposed problem is shown.
The input of the Demand Response Model are the market-
based 24-hour RTP prices, which are announced at 17:00 the
day before they are executed. We will assume that these prices
remain constant during the whole evaluation.
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Fig. 4. Smart Distribution SystemEfficient and Economic Operation Problem
Flowchart

The Market-Based RTP prices are inputs of the demand
response model, whose output is the hourly influenced
demand. The influenced demand and the clients photovoltaic
generation forecasts are used to compute the 24-hour demand
profile. We treat the output of photovoltaic generation as a
negative demand.
The demand profile is then used to simulate hourly
distribution load flows, whose results will be the power flows
through distribution feeders and voltages in nodes. In the next
block, operating cost overruns, purchased energy costs,
congestion ENS costs, voltage quality penalty costs and losses
costs are computed.
The RTP prices are inputs of an optimization problem for
the minimization of the above mentioned costs for the 24
hours. As a result of solving this problem, an optimal
distribution pricing will be obtained. The problem will be
solved using a novel heuristic optimization method known as
Mean-Variance Mapping Optimization (MVMO) [13],
nevertheless we may use other algorithms to compare their
convergence time. The optimized electricity pricing will be
limited as a top by the corresponding hourly RTP price; which
means that the RTP price cannot be exceeded. Once the
maximum number of iterations are exceeded the optimization
loop ends.
D. Demand Response Model
The aim of this part of the work is to determine the price
responsiveness of a group of clients directly. Based on the
ANN-based model proposed in [7], we will determine the
demand response of a group of 231 residential clients
connected to a distribution transformer; 9 of these clients are
participating in a 2 rate TOU pricing program. The model will
be trained with a data sample that consists in 15-minute
price/demand measurements from 9 months, that were taken
from a German pilot demand response program called E-
DeMa [14]. This project was implemented in Mlheim an der
Ruhr in Germany. This information can be later be used to
describe the response of clients connected to other distribution
transformers and feeders, assuming that their response is
comparable.
In this model the demand response results from: 1) the
motivation of residential consumers to respond to the pricing
and; 2) the amount of electrical power that consumers can
reduce or increase at corresponding time of day, accordingly
to a previous model proposed by the same authors [6]. In
figure 5 we show the structure of the demand response model.



Fig. 5. Structure of the Demand Response Model

1) The customers motivation (Price Responsiveness block)
depends on the electricity pricing and time data. As shown in
figure 6, in this model the ANN is a two-layer- feed-forward
network. The model is trained with data from previous
pricings that were given to consumers in a pilot project [14].
Other inputs are time of the day, day of the week, and
temperature. A back-propagation algorithm will be used to fit
the registered data by optimizing the W
j,i
and U
k,j
parameters.

Hourly RTP
data
Demand
Response
Model
Distribution
Load Flow
if #iterations <
Max iterations
End
Distribution
Pricing
Optimization
Demand
and Solar
Power
Forecast
No
Yes
Line Flows,
Nodes
Voltages
Operational
costs
computation
COSTS
ENS, losses,
voltage limits,
purchased energy
Optimized
24-hour
Distribution
Pricing
Electricity Pricing (Market-
Based RTP)
Time Data (time of the day,
day of the week, temperature)
Load Profile
(Forecast)
Price
Responsiveness
(ANN)
Consumers
Demand
Demand
Response
Customers Demand Response
Motivation (t)
P (t) max
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Fig. 6. The price responsiveness ANN model

The motivation indicates the consumers willingness to
respond to the pricing in terms of load shifting. This
motivation varies between -1 and +1, standing -1 for
maximum motivation to switch-off loads and +1 for maximum
motivation to switch-on loads. A motivation of 0 implies that
there is no motivation for change in consumption patterns. The
standard deviation of motivation is trained to take into account
the consumers uncertainty. As the behavior of consumers is
not known, an analytical method cannot be used to describe
the consumers behavior. Hence ANNs are adequate to
describe the consumers behavior, because these systems are
able to map the price responsiveness from the available data
series. In [9] an interest review and evaluation of ANN for
short term load forecasting is available.
2) The model of consumers demand indicates the amount
of electrical power that residential consumers can increase or
reduce compared to the instantaneous power at the
corresponding time of the day. This model depends on three
factors: the forecasted load profile, the energy that was already
shifted during the day, and the frequency of load shifting
which is limited. This model can be described by (5).

P
_
(t) = [P(t), w
sh]tcd
, (w
sh]tcd
) (S)

E. Optimal distribution pricing
Considering that the electricity pricing is the only
optimizable variable, it can be optimized to minimize
distribution network operating costs. The application user
must enter the rate framework that will be optimized (i,e.
TOU, RTP, etc). In figure 7 we show a TOU pricing with 2
rates which is the most understandable pricing for clients. This
rate can be defined in the optimization problem using 4
variables, 2 continuous (x3-x4) and 2 discrete (x1-x2), which
will be optimized.


Fig. 7. Framework of a TOU pricing with 2 rates [8]

The optimization problem is formulated as follows:

Minimize

= PEC(t

) +ENSC(t

) + IC(t

) + I0SSC(t

)
24
t=1
(14)

subject to
w = w(t

) = u (1S)
24
t
i
=1

x
utc
(t

) RIP
utc
(t

) (16)
where

t

: hour i
PEC(t

): Purchased energy costs at time t

ENSC(t

): Energy not supplied costs due to network

congestion at time t

IC(t

): Voltage quality penalty costs at time t

I0SSC(t

): Technical losses costs at time t

w: Sum of energy shifted and connected load
through the day
x
utc
(t

) : The pricing rate optimizable variables at time t

RIP
utc
(t

) : The RTP pricing rate at time t

From (14) it can be understood that the objective of the
optimization problem is to minimize the purchased energy
costs, the energy not supplied costs, the voltage quality
penalty costs and the losses costs. As a result of the problem
an optimal distribution pricing will be obtained.
The restriction from (15) means that the energy that has
been shifted must be consumed in another time of the day.
Restriction (16) limits the optimized pricing in a way that it
does not higher than the RTP rate in the corresponding time.
In [14] the heuristic optimization algorithm known as
MVMO was used to solve a daily demand profile variance
minimization problem, outperforming Particle Swarm
Optimization in terms of convergence time. Considering that
this application should be able to run in real-time, we will use
MVMO to solve this optimization problem.
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IV. CONCLUSIONS
In this paper as a part of Ph.D. thesis work, we have
proposed a distribution network efficient and economic
operation problem considering demand response. In this
problem the only optimizable variables are the electricity
pricing rates. We have reviewed papers that analyze the
demand response as a consumer behavior issue. The price
elasticity matrix model used by various authors to describe
demand response fails in sense that it is assumed as static. In
the proposed model, demand response can be retrained when
weather or demand profile change from day to day.
Although we have proposed MVMO as an algorithm to
solve the optimal pricing problem due to its convergence
characteristics, we may compare its performance with other
heuristic optimization algorithms.
In a later work we may incorporate PV ESS to the problem,
in such a way that the charge/discharge schedules may be
optimized as well, in this case to maximize the economic
benefits of residential customers that are in fact the PV
owners.
V. REFERENCES

[1] M. P. Silva, J . T. Saraiva, and A. V. Sousa, "A Web
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[3] A. Ferreira and C. Dortolina, "Economics Behind
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VI. BIOGRAPHIES

Juan Pablo Palacios (SM05, GSM11) was
born at Portoviejo in Ecuador, on J une 28, 1980.
He received the Electrical Engineer degree from
Escuela Politcnica Nacional, Ecuador, in 2007.
He is currently pursuing a Ph.D. degree in
Electrical Engineering at Universidad Nacional
de San J uan in Argentina, with a scholarship
from the German Academic Exchange Service
(DAAD). His areas of expertise include power
systems control systems modeling, distribution
networks, smart grids, distributed generation.


Mauricio E. Samper (S07GS11) received the
Electrical Engineer degree from the National
University of San J uan (UNSJ ) in 2002 and the
Ph.D. degree from the Institute of Electrical
Energy (IEE),UNSJ , Argentina in 2011.
Presently, he is an Assistant Research
Professor at the IEE-UNSJ . His areas of expertise
include competitive power markets, distribution
networks, and quality of service, distributed
generation, smart grids, and investments under
uncertainty.

Alberto Vargas (M97,S M02) received the
Electromechanical Engineer degree from
Universidad Nacional de Cuyo, Argentina, in
1975 and the Ph.D. degree in electrical
engineering in 2001 fromUniversidad Nacional
de San J uan, Argentina.
He is currently a Professor at Instituto de
Energa Elctrica, Universidad Nacional de San
J uan (IEE-UNSJ ), Argentina. Since 1985, he has
been the Head Researcher of the Regulating and
Planning teamin electric markets, at IEE-UNSJ .
He is a Consulting Program Manager of
THE 10
th
LATIN-AMERICAN CONGRESS ON ELECTRICITY GENERATION AND TRANSMISSION - CLAGTEE 2013 8
Asinelsa S.A, a specialized software company for electric distribution
development dealing with electrical AM/\FM GIS and DMS applications.