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Demand response (DR) can be defined as change in electric usage by end-use customers from their normal consumption patterns in response to change in the price of electricity over time. Demand Response also refers to incentive payments designed to induce lower electricity use at times of high wholesale market prices. Time-of-use (TOU) power pricing has been shown to have a significant influence on ensuring a stable and optimal operation of a power system. This paper presents a novel algorithm for finding an optimum time-of-use electricity pricing in monopoly utility markets; definitions and the relations between supply and demand as well as different cost components are also presented. Further, the optimal pricing strategy is developed to maximize the benefit of society while implementing a demand response strategy. Finally, the effect of demand response in electricity prices is demonstrated using a simulated case study.
Datchanamoorthy et al. (Sat,) studied this question.