A Design Method for Incentive-based Demand Response Programs Based on a Framework of Social Welfare Maximization

Abstract

Demand response program (DR) is expected as one of the most effective alternatives to the traditional power supply-demand operations because it does not require additional investment in power plants and equipment. However, there is still room for discussion on setting of electricity price and rebate level with ensuring resources. This paper presents a pricing method for the DRs based on an idea of social welfare maximization. In the proposed method, decrement of the consumers’ comfort, which is caused by the DR cooperation, is calculated as the appropriate incentive payment. That is, the authors evaluate the negative consumer surplus, and convert it into the incentive payment in the DRs. Meanwhile, the limit of DR requirement is estimated in accordance with the resulting decrement of suppliers’ benefit. Through discussions on numerical results, usefulness of the authors’ proposal is verified.