Economic and Operational Implications of Demand Charge for Distribution Systems with Renewable Energy

Abstract

Demand charge is a tariff option widely used in commercial and industrial sectors. As the demand charge bills on the peak load within a specified period, it is considered a useful pricing tool when the net electricity usage is declining due to distributed renewable integration. We study the retail tariff design problem with demand charge to maximize the social welfare while maintains the utility’s break-even constraint. A Stackelberg game model is adopted to describe the interactions between the retailer and consumers. The tariff design problem is then formulated as a bi-level programming model and transformed into a mathematical program with equilibrium constraints (MPEC). Real-world demand and tariff data are used to show the economic and operational benefits of three different tariff designs.