Optimal Control of Residential Energy Storage Under Price Fluctuations

Abstract

An increasing number of retail energy markets exhibit price fluctuations and provide home users the oppor- tunity to buy energy at lower than average prices. However, such cost savings are hard to realize in practice because they require human users to observe the price fluctuations and shi ft their electricity demand to low price periods. We propose to temporarily store energy of low price periods in a home battery and use it later to satisfy user demand when energy prices are high. This enables home users to save on their electricity bill by exploiting price variability without changing their consumption habits. We formulate the problem of minimizing the cost of energy storage purchases subject to both user demands and prices as a Markov Decision Process and show that the optimal policy has a threshold structure. We also use a numerical example to show that this policy can lead to significant cost savings, an d we offer various directions for future research. Index Terms—Battery storage, dynamic pricing, dynamic pro- gramming, energy storage, threshold policy.