Electricity Pricing and Its Role in Modern Smart Energy System Design: A Review

Energy is the foundation for human survival and socio-economic development, and electricity is a key form of energy. Electricity prices are a key factor affecting the interests of various stakeholders in the electricity market, playing a significant role in the sustainable development of energy and the environment. As the number of distributed energy resources (DERs) increases, today’s power systems no longer rely on a vertical market model and fixed electricity pricing scheme but instead depend on power dispatch and dynamic pricing to match supply and demand. This can help prevent significant fluctuations in supply–load imbalance and maintain system stability. Modern power grids have evolved by integrating information, communication, and intelligent control technologies with traditional power systems, giving rise to the concept of smart electric grids. Choosing an appropriate pricing scheme to manage large-scale DERs and controllable loads in today’s power grid become very important. However, the existing literature lacks a comprehensive review of electricity pricing in power systems and its transformative impact on shaping the energy landscape. To fill this void, this paper provides a survey on the developments, methods, and frameworks related to electricity pricing and energy trading. The review mainly considers the development of pricing in a centralized power grid, peer-to-peer (P2P) and microgrid-to-microgrid (M2M) energy trading and sharing, and various pricing methods. The review will cover the pricing schemes in modern power systems, particularly with respect to renewable energy sources (RESs) and batteries, as well as controllable load applications, and the impact of pricing schemes based on demand-side ancillary services (DSAS) for grid frequency support. Lastly, this review article describes the current frameworks and limitations of electricity pricing in the current energy market, as well as future research directions. This review should offer a great overview and deep insights into today’s electricity market and how pricing methods will drive and facilitate the future establishment of smart energy systems.