Pricing Mechanism for Demand Response based on Penalty Paradigm

Abstract

The peak-demand periods differ among consumers and hence their contributions to the system peak-demand in an electricity network. Usually, the price-based demand response (DR) mechanisms produce the price-signals for reducing peak-demand without differentiating the consumers based on their contribution to the peak-demand. It is necessary to design a DR price-signal which can differentiate peak-demand contributing consumer and non-contributing consumer. To address this issue, a two-tier pricing mechanism is proposed for the day-ahead market, where price is composed of a fixed basic-price and a time-varying penalty-price. Consumer demand-bids are divided into two components: basic-component and penalty-component. Basic-price rate applies to the basic-component and the penalty-price rate for the penalty-component. Results show that the proposed pricing mechanism increased the electricity bill for contributing consumers in contrast to non-contributing consumers. Further, DR is implemented for the consumers having penalty-component via demand-rebid mechanism.