Demand response: Understanding the rational behavior of consumers in a Peak Time Rebate Program

The optimal behavior of the demand side in an electricity market is studied when a consumer participates in a Peak Time Rebate Program (PTR). The main motivation is the growth of demand bidding programs around the world in order to reduce peak power consumption events. The situation is posed as a stochastic programming problem where the user chooses the optimal consumption profile to maximize his economic benefits. The consumer preferences are modeled as a risk-averse function under additive uncertainty. The case considered uses the previous consumption as the household-specific baseline for PTR program. As result, a rational user alters the baseline in order to increase his well-being. When the incentive is greater than the energy retail price, the best behavior for the user is to consume the maximum possible energy during the baseline setting period in order to get the highest profits during the PTR time. Thus, PTR program is not a favorable mechanism for a System Operator (SO) from an economic view whether the SO does not control properly the user participation.