Coupon Incentive-Based Demand Response: Theory and Case Study

Abstract

This paper presents the formulation and critical assessment of a novel type of demand response (DR) program targeting retail customers (such as small/medium size commercial, industrial, and residential customers) who are equipped with smart meters yet still face a flat rate. Enabled by pervasive mobile communication capabilities and smart grid technologies, load serving entities (LSEs) could offer retail customers coupon incentives via near-real-time information networks to induce demand response for a future period of time in anticipation of intermittent generation ramping and/or price spikes. This scheme is referred to as coupon incentive-based demand response (CIDR). In contrast to the real-time pricing or peak load pricing DR programs, CIDR continues to offer a flat rate to retail customers and also provides them with voluntary incentives to induce demand response. Theoretical analysis shows the benefits of the proposed scheme in terms of social welfare, consumer surplus, LSE profit, the robustness of the retail electricity rate, and readiness for implementation. The pros and cons are discussed in comparison with existing DR programs. Numerical illustration is performed based on realistic supply and demand data obtained from the Electric Reliability Council of Texas (ERCOT).