A new residential demand response management method based on a social welfare optimization framework

In this paper, our goal is to define a method of welfare maximization in which the level of customers´ social welfare, before and after changing the pricing policy from a flat pricing method to a real time one, remain unchanged. Each user is given a smart meter that monitors their electricity usage and at the same time informs the customers of the new prices at the start of each hour. The new price signal is comprised of time and usage dependent parameters. This new pricing method encourages users to reshape their usage algorithm towards a responsible model in which the load peak and electricity costs for the users are reduced. In order to do so a cost function named welfare function, is introduced that minimizing it, will result in fulfillment of aforementioned goals. By implementing these new pricing methods and optimizing power consumption, the load peak will reduce by 21% and the cost of users´ electricity bill will decrease by 16% and at the same time the total welfare level will remain nearly the same.