On the trade-off between real-time pricing and the social acceptability costs of demand response

Dynamic tariff policies have become an essential feature of modern electric grid design. The successful implementation of such policies usually depends on overcoming the resistance of end-users to real-time pricing and its political implications. In this paper, we review the literature on the social acceptability costs of implementing demand response programs, and we discuss the key features of implementing a real-time price to energy. Although the literature acknowledges the existence of a social acceptability cost, it does not propose an explicit approach to dealing with this issue. A model for investigating the implications of the social acceptability cost is thus introduced and through it, we discuss thoroughly the joint impact of the elasticity and externality parameters on the tariff design of a demand response program. We explore how the increases in elasticity and in externality effects influence price changes in such programs and how the social acceptability cost could be reduced as a function of pricing policies. We conclude by discussing the policy design mechanisms in line with demand elasticity and their role in decreasing price variations to cope with the minimum volatility principle. In the presence of policies that penalize high prices, there is an even further decrease in price variations.