Could smart meters disrupt the grid?

The average economic agent is often used to model the dynamics of simple markets, based on the assumption that the dynamics of a system of many agents can be averaged over in time and space. A popular idea that is based on this seemingly intuitive notion is to dampen electric power fluctuations from fluctuating sources (as, e.g., wind or solar) via a market mechanism, namely by variable power prices that adapt demand to supply.

The standard model of an average economic agent predicts that fluctuations are reduced by such an adaptive pricing mechanism. However, the underlying assumption that the actions of all agents average out on the time axis is not always true in a market of many agents.

The authors numerically study an econophysics agent model of an adaptive power market that does not assume averaging a priori. We find that when agents are exposed to source noise via correlated price fluctuations (as adaptive pricing schemes suggest), the market may amplify those fluctuations.

In particular, small price changes may translate to large load fluctuations through catastrophic consumer synchronization. As a result, an adaptive power market may cause the opposite effect than intended: Power demand fluctuations are not dampened but amplified instead.

> Download free paper in Physical Review E: Econophysics of adaptive power markets: When a market does not dampen fluctuations but amplifies them


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