Title
Analyzing the Flexibility Afforded by Smart Charging as a Multi-product Newsvendor with Indifferent Demand
Abstract
In this paper, we take the perspective of a smart charging operator, who needs to make a day-ahead bid on the amount of energy required on the next day, before the demand for smart charging materializes. The demand comprises the quantity of vehicles, as well as the heterogeneous degree of flexibility that each vehicle affords the charging operator, both of which are stochastic at the point of making the day-ahead bid. We cast this problem as a multi-product newsvendor problem with demand flexibility, in the form of product indifference. We show that the optimal order quantity for such a newsvendor problem can be exactly characterized to derive insights explaining the interplay between flexibility and revenue. Returning to the smart charging context, by studying the structure of the optimal policy in simulations, we show that, contrary to expectations, the mechanism of flexibility does not lead to demand smoothing, but rather an amplification of existing market imbalances, with serious implications for policy.
Bio
Dr Gar Goei Loke is an associate professor with the department of management and marketing in Durham University Business School. His research focuses on the development of frameworks and methodologies in optimization under uncertainty. He finds applications in service and inventory management problems, with a stronger focus on public services like healthcare and utilities. He publishes in Operations Research and Manufacturing & Service Operations Management.