Demand Response Cooperative and Demand Charge

Abstract

In this paper, we show that a group of Demand Response (DR) providing customers will benefit by transferring into a cooperative. While the benefit of aggregation is definite when unconstrained, this paper is devoted to studying benefits of a DR cooperative with a nonlinear piecewise objective function of minimizing net cost comprising energy charges and demand charges while being constrained by power system constraints and other physical constraints. We propose a two-level stochastic optimization formulation that provides a model for DR cooperatives to aggregate and schedule participating resources with the objective of minimizing the total electricity bill comprising energy and demand charges. It also provides a settlement tool for the cooperative to share costs and benefits among its members. In the first level, a stochastic mixed integer linear optimization formulation to minimize the total resource cost for the electricity market is solved considering various probabilistic scenarios to find locational marginal prices (LMPs) for 24-hours and the corresponding amount of DR scheduled for DR participants including the cooperative. In the second level, a linear optimization formulation is solved to schedule DR of cooperative members with the objective of minimizing the total electricity bill of the cooperative comprising energy and demand charges. Finally, we present a settlement tool to share the costs and benefits amongst the cooperative members, whereby all members benefit from reduced electricity bills. The proposed model was tested on modified IEEE 6-bus and 118-bus systems. The results conclusively demonstrate the benefit of the proposed cooperative model for DR where scheduling DR in concert by members has a pronounced effect in reducing demand charges for all more than that achieved by individual members minimizing their own electricity bills.