An Economic Demand Response Model in Liberalized Electricity Markets with Respect to Flexibility of Consumers

Before restructuring in the electricity industry, the primary decision-makers of the electricity market were deemed to be power generation and transmission companies, market regulation boards, and power industry regulators. In this traditional structure, consumers were interested in receiving electricity at flat rates while paying no attention to the problems of this industry. This attitude was the source of many problems, sometimes leading to collapse of power systems and widespread blackouts. Restructuring of the electricity industry however provided a multitude of solutions to these problems. The most important solution can be demand response (DR) programs. This paper proposes an economic DR model for residential consumers in liberalized electricity markets to change their consumption pattern from times of high energy prices to other times to maximize their utility functions. This economic model is developed based on constant elasticity of substitution (CES) utility function known as one of the most popular utility functions in microeconomics. Simulation results indicate that the proposed model is adaptable to any group of residential consumers with any disposition toward participation in DR programs and can be adjusted for any time period according to the preference given by the residential consumer.