Time-based electricity pricing for Demand Response implementation in monopolized electricity market

Demand Response (DR) refers to short-term changes by customers in their accustomed electric consumption patterns to reduce or shift electrical load over time. It allows customer participation in reducing electricity consumption during peak hour period. The main requirement for DR is time-based electricity pricing such as Time of Use (ToU) pricing or Real Time Pricing (RTP). TOU pricing provides customers with different electricity rates/tariff for different blocks of time in the 24 hour period. Whereas RTP offers the price that fluctuates hourly, that reflects the hourly electricity market price. The key success of DR program in any country depends on the proper time-based pricing model that is influenced by the structure of the electricity industry. For monopolized electricity market structure like in Malaysia, applying time-based pricing would be difficult due to the non-existence of electricity market price. The utility needs to consider their cost of generating electricity on time/hourly basis in setting the right price signal to DR programs. This paper compares the two pricing scheme by using a simple test system that relates the cost of electricity generation. The strengths and weaknesses of the two schemes under monopolized electricity structure will be highlighted and discussed.