A rational pricing model for demand response programs in contemporary distribution systems

In the context of emerging electricity market, the demand response (DR) coupled dynamic pricing has assumed significant importance. However, the existing dynamic price models have raised typical socio-economic problems pertaining to cross-subsidy, free-riders, social inequity, and unjustified allocation of benefits, etc. This paper presents a new dynamic price model which aims to overcome the problems of cross-subsidy and free-riders of the existing price models for widespread acceptance and efficient utilization of price-based DR programs in contemporary distribution systems. The model is designed based on the concept of economic equilibrium that describes the balance between purchase and sale of the electricity. Proposed price model generates demand-linked price signal during on-peak hours that imposes different rates to different customers based on their share in peak demand, but remains static otherwise. Further, the financial benefits and penalties pertaining to DR are self-adjusted among customers while preserving social equity and profit of the utility. These novel features make the proposed model class apart by outperforming the other pricing models that have been already discussed in the literature. The proposed model shows mass customers are saving up to 60% in electricity bills thus providing a suitable environment for enhanced participation in DR. It also outperforms the existing models in terms of risk-reward trade-off. The detailed investigation of the proposed model is carried out on standard test bench bus load data and is also compared with the existing pricing models.